tv Tonight From Washington CSPAN February 26, 2010 6:30pm-11:00pm EST
is where. a child that is born with congenital deafness can in fact live a highly productive life and many of those kids have been able to do so. but with early screening, to be sure, whether children -- to be sure whether children can hear or not, they are picked up early. these implants are now highly successful. something like 60,000 people now have them. that makes it possible if instituted early for that child to develop normal language. the cost of the implant is about $60,000 per patient. but if you add up the additional cost for education needed by a deaf child, that is about $1 million. so you see the economics as well as the benevolent side of this are strongly in favor of what is now possible. i wanted to say awarded to about economics concerning there is
concern about our economy in this nation and world wide. economists agree, looking back over our history since world war ii, that more than half of the economic growth in the u.s. came out of investments in science and technology. i do not know if that is widely appreciated, but that is widely agreed upon. this would be pretty good place to make those investments today. in fact, that is what has happened. the recovery act, which has been in place for about a year, included $10 billion that went to the national institutes of health to be spent in a two- year. -- in a two-year period. at nih, there was a great chance to figure out how to use that wisely in a short time. the staff rose to the occasion.
we put out requests for applications to see who was that there who had some signs that would like to propose. we assembled 15,000 reviewers to look at the grants that came in. over the course of just a few months, we did the reviews and a second level of review and then decided on which grants to fund. the idea was spectacular. when i arrived in august, i have a chance to read through some of the applications that were likely to get funded but were may be on the cusp of whether we could afford it or not. there were fantastically interesting and innovative. we have a great engine of discovery out there that needs to be revved up. out of that, we funded some 13,000 grants. 2000 of those were people who had never gone a grant from nih before. they're bringing in new disciplines and new investigators. institutions, more than 20 of them, had never been funded by nih. small businesses were also supported by nih grants.
in this two-year period, thousands of jobs will be created. this is across the country. and if a% of what nih does is given no -- about 85% of what nih does is given out in grants. this is part of the engine of economic recovery. science is not a 100 yard dash. it is a marathon. two years is generally too short for a project to get fully explored. as the recovery act time when comes to a close, how will we make sure that we keep that momentum going? we are very fortunate that we have a president who believes in the value of science as it contributes to our nation in solving problems and stimulating the economy.
so when the president's budget was rolled up on feb. forcefirs, signs did quite well. -- ruled out on february 1, science did quite well. we will certainly be able to use that in many exciting ways. i want to tell you what some of those might be. i was initially approached about the possibility of becoming nih director several months before it was announced or confirmed by the senate. there is a long process. the fbi delves into what you really did in fifth grade. [laughter] i told them that my life was pretty boring. i guess they must have agreed. [laughter] all of those weeks of waiting for that, there was an opportunity to think about what would really be a useful way for
the nih director' to try to steer this ship with all of its promise and complexity and 325,000 grantees and scientists who work on our grants, ways that we can nurture sites in particular directions? i came up with a series of five themes which i had a chance to discuss with other big thinkers in the community. i want to mention those, but i also want to mention the fact that just yesterday we funded seven new cost cutting innovative projects in what is called the nih, and find. i wanted to u-haul if this together with those themes. -- i want to tell you how it fits together with those teams.
[unintelligible] those institutes and centers are wonderful organizations of talented and visionary scientists, but they have specific missions, like the cancer institute, the diabetes institute, and so on. when you encounter a scientific opportunity that does not easily fit into one of those diseases, how does it get support? the common fund is the answer to that. i am the beneficiary of its success. the common fund now gives the nih director it chance to do simple things that might otherwise have only been achieved by a lot of tin cup i ping. so the common fund it possible to announce those seven new proposals yesterday. let me talk about the five
themes that i see as particularly exciting opportunities that cut across diseases, that cut across basic and applied science. the first of those is the ability to apply new high throughput bold technology to look at a comprehensive way the xcel does what it does, how the organism does what it does, and how sometimes that goes wrong and disease occurs. the feel that i have had a great deal to working in my previous livfe allows you to look at all of the dna and all of the proteins. it is about imaging approaches. it is about special approaches that require nanotechnology. it is about computational biology. it has reached the point where
they're ready to be applied in large scale fashion to disease applications that we could not have done a few years ago . cancer is a disease of dna, but we have not been able to comprehensively see where the glitches are in a cancer cell that makes it go bad. we have had abilities to look at candidate genes. now we can live at the whole street and have the tools to survey the entire genome in a cancer cell. there are prodigiously exciting things coming out of that. we have already applied this for brain tumors. it is clear that that has completely taken this monolithic idea, that the brain
tumors are just one thing, and broken it down into four very distinct sense that -- a distinct subjects. this is the kind of thing you dream of. up until now, all brain tumors were considered the same, treated the same way, and the outlook has been pretty dismal. but only have we learned to break this down into subset, but we have found new targets for drug therapy that we did not know was possible before. it also gives us new ideas to revolutionize therapeutics in the coming years. it is a great example of how we can take a hike through prput approach. that is going to happen over the next two years. basically, this amounts to doing 20,000 genome project in the next two years, which is pretty breathtaking for me to say with a straight face.
after all, i was a bit involved in the first human genome which took about 13 years and cost about $300 million. now i can tell you that we can do one genome for about $3,000. other applications of this kind of high throughput approach can help optimism. we need to desperately understand the causes -- can help autism. we need to dispel in a stand of the causes of this disease. clearly, there is a mix -- we need to desperately to understand the causes of this disease. clearly, there is a mixed of genetics. if we counted up the number of microbes that live on you and in you and compared to that number of cells to the cells that are
actually your own human cells, they have us outnumbered. [laughter] we do not know much about them. we kind of hope that they are there with good purpose and being some biotic and synergistic and not making us sick. but i am sure that we will discover tools. the tools that we have now can help us discover what is there. most of these microbes cannot be grown in the laboratory. but they have dna. so we can find them by that particular signature. those are a few examples of the high throughput approach. the seven new brands, three of themñr fit into this next theme. trying to understand how turning down one particular gene might have a similar effect to adding one particular drug. it is the idea of taking a collection of cells and hitting
them with all kinds of determinationpeturbigens. another program is to develop better protein reagents to be able to sample what particular protein out of hundreds of thousands or millions. we do not have a good inventory of those that are high quality. we need to generate those and make them available at below cost for investigators who depend on these heavily for research. it is a systematic approach to providing a research tool. a third one that fits in is the knockout efforts. -- bob doubt mouth efforts. -- knockout mouth efforts.
you know about this gene. no one knows much about it. çóbut let's make a mouth and see what it looks like. that will be a part of this in a large international cooperation. you can see that high throughput technologies is right for these. the second theme, the one that is particularly relevant to what is being talked about in washington, is health care reform and the need to supply signs evidence-based ideas. nih has been doing that for a long time. that is what clinical trials are all about. a particular strong area of interest is something called comparative interest research. you know there's more than one
approach to a particular kind of problem and you do not know which one is better. so let's do it clinical study and try to figure that out. nih has been supporting those cities for many years. it is now it very much a high priority -- nih has been supporting those studies for many years. it is now very much a high priority. aid was announced today in at the -- it was announced today at the neurology institute that they tried to assess the right treatment for somebody who has narrowing of the carotid artery in the neck and is therefore at a risk for stroke. it could get picked up in a regular exam or a glimmer of risk for someone who has had eight tsia. the standard treatment has been surgery to pull up the plaque out of that artery.
-- to pull out the plaque out of that artery. ñris that as good? do we know? nih sponsored a large trial the answer is that it is just about the same success rate. there is a little bit of difference betweenñi younger patients and older patients and doctors will have to take that into account. but this is useful information. that is what we're doing to help assist in the health care reform discussions. personalized health care is in there as well health economics is in there, trying to understand what motivates providers in terms of the decisions they make about care. maybe nih can do something more to test at various incentives that might be useful in been in the cost curve. again, the seven new common fund proposals that came out
directly relevant to this. ñiit is a new research program n the signs of behavior change. how is it that people make decisions about altering their health behaviors. we mayçó generate all this information about effective prevention, but if we do not know how to convey it, the people absorbent and act on it and the resources will be wasted. there is some evidence that there is a better way to do that, but we need better research. ñrthe third theme of my five themes is global health. we are at a time where global health research has more potential than it has had perhaps in all of history. we have learned a lot about those pathogens thatçó cause diseases in low-income countries. we have a chance to develop new strategies, new drugs, new vaccines, new diagnostics, and i would like to see nih of that at
the bit. perhaps this is a good time to remember that that kind of outreach is a very good and effective means of diplomacy. we can focus not only on tuberculosis and malaria, but on some of the neglected tropical diseases that have not gone attention. we need to focus on the noncommittal diseases like diabetes and hypertension, the fastest growing cause of morbidity. we have done relatively little to prepare for that. we also need to be sure that we are encouraging the building of capacity in those countries where the problems occurred brother than continue to go forward where we come in the developed world, are providing the tools and just handing them
over. this is time to create a surge capacity in the south sahara and others. we decided to contribute to an initiative that comes through the president's emergency plan for aids relief to provide tools for political medical and research education at institutions in sub-saharan africa. it is not to about eight, tv, and malaria. mitchell also be about noncanonical -- is not just about aids, tb, and malaria. it should also be about nine communicable diseases. there are several components that are at exciting junctures'. one is the ability to discover such plasticity among cell types that we can actually take one of
your skin cells and convince it to become a neuron. [unintelligible] i do not think anybody was prepared for this. i remember reading that paper. i was supposed to be on vacation and i snuck off to a corner and read this paper. i literally got cold chills because of the way this has changed forever our understanding of what you might be able to do it in terms of a change in one cell type into another. it turns out that just for genes inserted into that skin cell can convince it to go back in time and become prepotent. then you can take it end convince it to go down different pathways -- then you can take it and convincing to go down different pathways.
and these are your cells. if these were applied, you would not have transplant rejection problems. many steps have to be taken before a these things become a reality. the six concerns are real. but i do not know anybody who is not excited about -- the safety concerns are real. but i don't know anybody who's not excited about pushing this through. because of the close connection to the clinical center, it should allow us to move things into this kind of transitional opportunity at the earliest phase, as soon as it looks like it is safe. natalie stem cells are exciting to look at, but also on approach -- not only stem cells are exciting to look at, but also an approach to looking at small molecules. what do i mean by that?
they are organic chemistry compounds. that is what drugs are, mostly small molecules. but we do not know what kind of a sheep you need in order to treat a disease. there is a science on how to do that which has largely been the province of the private sector. as we look around and see how many diseases are not getting any therapeutic in on them because they tend to be uncommon and there's not an economic incentive, it seems that it is time to get academic investigators involved. after all, there are 25 million people in this country who suffer from rare diseases. collectively, that is a lot of people. the science is not the point where we can imagine academic investigators playing a useful role. you have to study disease well enough to know what would be the hon. achilles' heel to be able to correct a cell that has gone
wrong. that is what a lot of basic science has been doing. was to identify the target, you have to figure out how to take that knowledge and turned into something you can test hundreds of thousands of times in the presence of hundreds of thousands are more different compounds. there is a hole size and kind of an art to that. we have now made that possible. we have also made it possible for academic investigators to actually do that kind of screening, with four centers in the country, in a matter of today's or three days. in the course of the last five years, at n.i.h. investigators have found 128 such compounds directed against more than several dozen targets. after that, you want to take those promising compounds into the next step, which is
ominously called the valley of death. that is where projects often go to die. the problem is that they have a very high failure rate. your compound may look good and then you get to an animal and then it goes wrong. once you have reached the point where you have a compound that looks promising in animals, you go to the fda and u.s. for permission to give them to patients in clinical trial. if all goes well, you go back to the fda and ask them to prove it for general use. that long pipeline, which can stretch out over a decade or more, can be expensive. it is primarily the province of the private sector. but we will lead to progress at the level that we hope to if we leave it only in that area. again, we can come up with a new model for partnership between nih-funded and a sears and pharma. this could be very exciting. - andbetween nih-funded
investigators and format. this could be very exciting. ñrif looks like there could be k promising. the company will say that they are interested. they can take it and carry it through. they will have the appropriate profit motive because the economic advantages look pretty acceptable. similarly, there may be compounds out there that companies have carried pretty far along and abandoned for one reason or another. we could bring them back into the public pipeline and see what we can do it with them, repurchase them for some other application. this pipeline re-engineering is an export -- is an exciting prospect. ñifive years ago, i do nothing e could have done this. now we can. to facilitate that, just two days ago,p, we announced a tigr
relationship between the fda and the nih. peggy hamburgerñr and secretary sebelius came out to nih. we announced a leadership council to focus on ways to streamline the process of evaluating new possible therapeutics and agreed to support a new set of scientific projects for regulatory size to get a handle on exactly how we should be reviewing protocols for rare diseases or unusual applications. that is a very exciting opportunity. i should draw to a close and let you ask questions. let me point out one more theme of my five things. it is really to empower and invigorate the research community. that is their most important resource. you may have great ideas and great size projects, but if nobody does it them, they just sit there. we have to come up with
better ways for innovation and there are a lot of ideas -- we have to come up with new and better ways for innovation and there are a lot of ideas out there. we need to be sure that we are supporting early stage investigators because there has been a graying of our research çóñrcommunity and we need to bee that individuals who are just joining us dhs to getñi started and it's supported -- joining us get a chance to get started and get supported. i think we now have to take this on very seriously. the future of biomedical research is in danger because of something we are not doing. we are not doing a good job of cultivating the next generation of scientists. we're doing a pretty terrible job. let me share with you some depressing statistics. today, 15-year-olds ranked 29th
in science achievement from 57 countries. almost half of our 12th graders scored below basic insights. a survey of students found that 84% said they would rather clean their room, eat their vegetables, or go to the dentist than do their math homework. [laughter] that does not sound like a good thing for our future. 40 years ago, when i was in high school, we had the best high school graduation in the world. by 2006, we had slipped to 18th place. so why does this matter? i am not saying that all of our high school students need to become scientists. but the work force needs people with quantitative skills in science and math. all of us as consumers need to be increasingly able to deal
we can do little things and we can do grand things. in april, i am going to do a little thing. i am going to go to national lab day and spend a day in a d.c. public school with high school biology students. i hope to share with them the wonder of being a scientist. i am going to encourage the scientists out here in bethesda to do the same, to get involved in national lab day. that means just to make themselves available and go to a school and have a relationship with a teacher and a class, not just as a one-day shot, but
something that builds over time. after sputnik, our nation became passionate about science innovation and engineering and math. this helped us to win the space race and help to prepare us for attending future in terms of the ability to make the right decisions and it stimulated our economy. but we have released it in that regard. so how do we do -- but we have really slipped in that regard. so how do we do the big things? there are proper ways to get things turned around. òx rñie example. the educate to renovate program was announced by the president to give teachers an opportunity for better science training and math training. and the governors are getting into the act. they are working together to develop and implement a common math and science standards. as the nih director, i wanted to
come here today and say that this is going to be a priority at the national institutes of health. if we are going to capitalize on his final opportunities ahead of us, we have to have the talent and new entries into our scientific work force that are waiting to get excited the way i was. i got excited about science in fifth grade. when i talk to scientists who are currently possess full in their area, 90% say that it was that teacher that taught me biology or physics or chemistry. i fear that we do not have many of those experiences happening and we have to do something about it. i have gone on longer than i should have, which is a chronic problem for me. you have been very understanding. you have listened quite faithfully. i would now like to stop and take whatever questions our moderator has shorted through and do my best to answer them. thank you very much. [applause]
cannot actually do that much to improve health care. they are often counterproductive. i think they have hit the nail on the head. there are many questions about health care reform -- >> what is your prescription for health care reform? what have you done to help craft the pending legislation? how important is that to get it passed this year? [laughter] >> let me remind you that i am a member of the executive branch appointed by the president and hoping to keep my job as long as the president is in place. i should be careful to remind you that i am not in a position to help write bills. i do get asked for technical advice when bills are being written. certainly, we have been
consulted as the process was going forward by the senate and house for specific provisions that affect them. one of them is about an area of interest in the house and senate version. some of this is not yet possible to determine. basically, the inspiration to do more of this and make sure it is connected with decision making downstream makes a lot of sense. our role at nih is to be a cheerleader and to provide the evidence that make possible for decisionmakers to know when they're deciding what to do whether it works or not. >> to use a phrase that you taught us all, you at times to find the town and progress to
be -- [laughter] >> doesn't everyone? this has been an amazing ride? -- an amazing ride. it has been hard to keep up with of the particular provisions and immersions. i do not know how many people had a chance to watch the back and forth yesterday, but it was pretty interesting in terms of -- as an appointee, it is impressive. for a purpose, i hope we are all learning something by being perturbed. >> please rate the effectiveness of the press and in disseminating information about health, science, and research. how you think it can be improved? >> should i talk to run specific
reporters? [laughter] -- talk about specific reporters? for the most part, the press does a good job. particularly now with the stress on the media, my hat is off to those who write stories in the space of limited resources with ridiculously short deadlines to convey what is happening in a balanced fashion. reporters are always struggling with pressures. it indicates something is bad. if it is good, you just cured cancer. i think we all struggle with the same tendencies to try and be absolutely clear about what it is and what it is not. i will mention a positive
example. there was a story about the development on the drug for cancer in a the new york times -- in "the new york times." it is a good example. he was given enough space to put it on the front page for three days in a row. i am sure reporters would love that. it does help a bit. there are certainly examples of where this goes wrong. the reporter actually heeded science in high school and was one of those people who would rather go to the dentist and the outcome of that kind of interchange can be garbled and unrecognizable. >> in your address to talk about behavior change. would it research showing that 50% of premature deaths in the united states is being pointed
to these things, what do you see as opportunities on the horizon for nih to reduce this percentages with behavioral findings? >> it is substantial. when i was director of the genome institute, the only branch founded in the last 10 years was social and behavioral research. you might wonder what that is doing in a genome institute. if you think about it, there is a clear need if you are making these discoveries to know what they are at risk for. we have interventions to help. you do not know how to get people to act on those. certainly, i think we learned a bit but not enough about interventions for smoking. we are going to see prevention for all of those things but we needed to have more data.
it is why we included the sides of the behavior change as one of the seven new initiatives. we have a new program which focuses on behavioral. -- basic behavioral and social science research. there is an office at nih that reports directly through one of the division to me. this is an area that i think will be a priority. we really want to understand how to influence behavior. >> please share some of your insights on religion and music on improving health. >> i do not know how much rigorous data there has been about music. certainly those who are music lovers who have gone through a trying medical experience would be likely to tell you and has been a source of comfort to them. whether we have a double blind
trials, how would you do that? ok, you get to listen to music by you listen to take music. there is an issue there on the placebo effect. in terms of religion, there have been studies there that sick people who do have a religious part of their life, if you look at their overall health status, it seems to be on the average somewhat better than those who do not. those are large population averages and certainly do not tell you about the individual in a very explicit way. >> how is your researchers play into michelle obama's initiative to end child of the city? >> we were delighted to see her step out with this priority. it -- initiative to end child obesity. the improvements that have happened over the last decade might be erased if we did not give control of this epidemic of obesity. it is not unusual for pediatricians to see adult onset
type ii diabetes which was on heard of years ago. -- which was unheard of. this is a matter of extreme importance. to have the first lady identify this as something that needs a national program and attention is welcoming indeed. nih has been working on the obesity problem. secretary sibelius has been handling and task force that we have a role in as well. there is a lot going into this in terms of behavior and figuring out how to alter the environment, availability of soft drinks, healthy foods in the schools. in terms of public education, getting things like calorie counts put on menus. all of these things could help but none of them is a perfect solution. we also work on whether there
are ways in terms of pharmacology to be able to assist dealing with of the city. we would much rather help -- had arrived there by using healthy means. what are the molecular pathway is involved in the appetite control? are there safeway's to interfere with that that might assist people who are struggling with of the city who have not yielded to other things? there is a program called "we can" which is devoted to childhood obesity. it has more now -- it has more than 1000 communities and is trying to decrease obesity. it can be linked up very nicely with michelle obama's announcement. >> how far can personalized medicide " for relieving and
preventing suffering? -- how far can personalize masai's go -- personalized medicine go? >> some people will still drive their harley motorcycles into trees and we will have to take care of them. i am thinking about my own risks here. personalized medicine has great promise in terms of getting people individualized information to enable them to practice prevention in a more practical way. the one-size-fits-all has not worked. we do not reimburse for it, but also because people ignore it and it does not sound relevant. any information about yourself when i have gone through the results of getting my dna testing, it was interesting. ibm 20 pounds lighter than i was last summer after finding a my diabetes risk.
--i am 20 pounds lighter. recognizing that is an important part. it is about things they can do something for. gene therapy is making strides after 20 years of a roller- coaster experience. i think we are quite a ways away on a seeing how gene therapy is on a broad scale. you can point to individuals were personalized medicine has had dramatic consequences, but most of us are not there yet. the question is what the directory will be to get there. a lot of that depends on the robustness of the research and if we had a medical -- medical care system. >> how you feel about the patenting of genes?
nih has a longstanding and very thoughtful policy about the patenting of genes. if they make the discovery university can apply for patents in the become the patent holder. nih is out that opportunity. i think many years ago we began to worry about whether our system was the doing what it was supposed to which was to benefit the public. that is why benjamin franklin came up with the plan, not to make inventor's rich but to try to provide an incentive for an inventor to develop their invention to a point where the product -- where the public good use, not where someone could still their ideas second day on the market. r.f. -- are genes in a good place for that? you do have a long pass, as we
talked about coming to get to the point of having their products and having a minimal monopoly for getting the product out. for diagnostics, on the other hand, the case is much less compelling crated diagnostic tests do not require the same level of investment over many years and how -- and hundreds of millions of dollars. hands-on genes for diagnostics are legal and that is somewhat under question with a lawsuit bring bought -- being brought to buy the aclu. as long as they are legal, you might -- you should not lices them >> -- license them exclusively. i hope you get the sense here. it is partly about hanson think -- partly about patenting and licensing. >> i come from latin america.
i was never expected to find this. >> photography and documentary filmmaker kike arnal on the c- span's "q & a." >> our guest is from the federal reserve banks from kansas city. this is 20 minutes. book tv weekend. >> "washington journal" continues. host: on your screen is thomas hoenig, president of the federal reserve bank of kansas city. dr. hoenig, what is the role of the federal reserve when it comes to regulating banks? guest: the role of the rhetoric -- federal reserve is a multifaceted in the regulation of banks. first, it does have a an oversight for financial
stability, and that involves all of major financial institutions in the country. more specifically it has a supervisory authority where it actually oversees the activities and the books of all the major bank holding companies in the country, and state banks that choose to be part of the federal reserve system. this gives us a hands-on information about conditions in the financial and banking industry. i call it the eyes of the federal reserve as we deal with the banks across the country, not just on wall street, but in other parts of the country like in our region, in the center of the country. is the central two-hour role in ensuring the financial stability -- is thessential to r role in ensuring the financial stability of the country. i considered an essential function of the federal reserve. host: what is the legislation
being considered by the senate banking committee that would alter that role, and what is your opinion of that legislation? guest: i have not seen the legislation yet. but i've learned through conversations with individuals in the senate and, of course, with the media, that proposals contemplate taking the federal reserve out of its supervisory role at this time, or in the near future. i think that is a tragic mistake. as i said, it takes the eyes away from the federal reserve and knowing what is going on in america. not just on wall street, but middle america -- for example, right now, we know that federal banks have issues in our part of a country with commercial real estate. we're also concerned about small business lending. by having examiners involved, we are gathering intelligence information on what is causing that and it is partly the recession, partly pressures on
these banks because they are dealing with -- partly capital pressures on these banks because they are dealing with loans. we're looking at ways to allow them, for example, to restructure loans that does not allow them to hide the problem, but the with the problem. you cannot do that from a distance. you have to be involved on an ongoing, daily, what i called "de" basis. that is what i hope the senate would not -- what i call "deep" basis. that is not what what i hope the would not do. i think that could have a very bad outcome for banks in the country. host: ben bernanke referred yesterday to short-term political liability for this.
guest: i think he is absolutely correct. people tend, under these kinds of conditions, to one to blame someone. the problem with that is there are plenty of people to blame. we deregulated the industry. the congress deregulated the industry. there was a culture, if you will, of deregulation. and this encouraged some of what i call speculative activities that led to the bubbles and then the collapse. yes, you had this reaction. i think it is an overreaction, and the outcome would be -- as you try to blame someone you get worse outcomes rather than better outcomes, and i think that is what the chairman was trying to communicate. host: does the banking committee and the members, are they right to be angry at the fete at all? guest: if they're going to be
angry, i think they have to be angry at everyone, including themselves. they allow these organizations to get bigger and more risk oriented. and yes, and regulatory agencies because of this culture -- the regulatory agencies because of this culture kind of backed off, if you will. but i also will say that in that kind of environment -- one of the things that i propose is that we need to have clear rules of the road. and that is, we need to reintroduce a simple, understandable rules around capitoal and liquidity and we need to be able to say, these are the standards. if you tell a supervisor that generally we want things to be good and you go into a bank and you look at the bank's books and you say, this looks like a concentration of credit, could
be a problem in the future, they will say, look at the performance of this portfolio. it is paid off. and we can sell these assets because they are in the expansion phase. if you have clear ratios, you can say, no, you cannot have -- if your boy to grow your balance, if you also have to have more capital, specifically in this ratio. and then you say, over that you make adjustments, that becomes counter cyclical and the outcomes are less advantageous under those conditions. those are the things we have to go back to. we have to diagnose this problem correctly. and rearranging who is the supervisor and take away from the federal reserve and who is going to be in their place? those are the kinds of questions you have to ask and answer before you take this
responsibility away from the federal reserve. host: we are putting the numbers up on the screen if you would like to talk with dr. thomas hoenig, president of the federal reserve bank of kansas city. e-mails and tweet as well. we will put those addresses up. what is your job as president of the kansas city federal reserve? guest: as president of the kansas city federal reserve, i have multiple duties, like inacio would have. i am involved in monetary policy. -i am a voting member every third year, as i am this year. that is a major responsibility for me. secondly, i have responsibility for oversight and supervision
activities, although, those activities are vested with a board of governors in washington. those employees report the information on the governors, but i manage the operation, if you will. >> for your -- host: for your region? guest: for western missouri, nebraska, kansas, oklahoma, wyoming, colorado, and new mexico. and thirdly, our bank processes payments. we are, in terms of wire transfers, large money transactions. we processed small electronic transactions through our bank. and that is a major operation. we also distribute cash for our regional banks. so, multiple responsibilities with that job. host: is it necessary in your view in the 21st century to have the fed divided into regions anymore?
guest: absolutely, more important than ever. i tell people in 1913 when the federal reserve was formed, there was no need for a 12 region system. the federal reserve system is the third central bank of the united states. the first two were monolithic organizations and they failed because they were not distributed across the country. the federal reserve is a product, if you will, of main street's distrust of concentrated financial power. they were very uneasy with it concentrated in washington. or just concentrated in wall street. so, the compromise in order to give confidence in the central bank and to address fears, if you will, they distributed power across these other 11 banks aside from the federal reserve in new york. we have boards of directors that
come from all walks of life and across every region, from agriculture, technology, from labor. that is essential to the input and feedback that goes -- it is more critical in these trying times to have that network and the communication stream, up and back, then it has ever been. i cannot emphasize that enough to the american people. host: this was in the "financial times" this morning. guest: i think that is a bit extreme. i am very concerned about the debt levels of the united states. i'm very concerned about the federal deficit, very concerned about the total debt, as has been noted by others. depending on your assumptions about the economy, the federal
debt will grow at an unsustainable level starting immediately or in a very few years. we do have significant private debt. so, that is in place, and what worries me about that is that it puts pressure on the federal reserve to keep interest rates artificially low end to deal with that debt. that will only make the problem worse. are we necessarily going to have a crisis in five years? no, there are actions that we can take. the administration outlined with the congress -- i know they have a commission they have set up to deal with the process. secondly, we will have to systematically increased our savings rate so that we can find our debt and, therefore, bring down debt over time. we do not want to do it too quickly because it will reduce the great -- the growth rate in the economy, but we do have to
do it. the longer we delay, the more likely that prediction is to come true. host: one more question before we go to phone calls. how much -- how independent are you and how much is ben bernanke your boss? guest: the reserve banks are set up to be independent, but the board of governors does have what they call a general oversight responsibility of the 12 banks to make sure that we are operated correctly. we are autonomous. the chairman of the federal reserve is the chairman of the board of the governors of federal reserve, and that gives him a lot of authority. but i also have a board of directors for my region, and they are my boss as well. or, they are my boss. and they can fire me or fail to reappoint me. i think is important to have
this board of directors because that brings the independent you to the open market committee, and that is why we were designed the wehrli we were -- the way we work. host: you have the longest tenure, don't you? you have been at the federal reserve since 1981 in various positions. the stake to first call. your honor with thomas hoenig -- you are on with thomas hoenig. caller: it sure is a misnomer to say that they have federal oversight of them banks when you are not even federer. uri private bank. i'm working -- you are not even federal. view are a private bank. i'm working very hard to make sure that you do not have a job.
the esteemed representative ron paul wants to audit the fed, something that you will of course, be vehemently against. host: we have the points. guest: we get these questions often. it is always interesting because of the misinformation that comes forward from this kind of call. let me explain, representative paul has every right to his view. he calls an audit of the fed, but in is in the fed. you have a right to that view. number one, if it really is auditing the fed, the federal reserve bank of kansas city and the federal reserve system is audited by the government accountability office. it is audited by a major auditing firm, deloitte.
our bank is examined by the board of governors. there is an enormous amount of auditing that goes on within the federal reserve. exceptions are found, we are held accountable and we correct them. in terms of allegations against the chairman or anyone else, they will not be, i think, found to have any substance to them. we welcome that review. i'd think the federal reserve system has encouraged the government accountability office to take a look at it. i understand your frustration and it is unfortunate, but it is also misinformed. host: are those audits public? guest: they are posted on their side and we published in our annual report. the public accounting's reports just like anyone would do, those
are very public and are on our web site. i invite you to look at those and go to the gao's website. host: how the pattern -- have you ever had a conversation with representative ron paul? guest: i have not. i have seen parts of his book and i understand the essence. he would love to see the gold standard. it is one of monetary system. it was bitterly opposed by many people in america at the time because of the inflationary impact. those are choices the congress can make. i would not recommend it to them. time the choice was made because of its deflationary impact. and those are choices that the congress can make. i would not recommend them. i would encourage ron paul to look beyond his goal of ending the fed. host: georgia, your honor with
dr. thomas hoenig. caller: as opposed to the first caller, i'm kind of a along some of his mind said, but i do know that you are probably one of the more same members of the fed and some of your -- one of the more sane members of the fed and some of your recent remarks have been in disagreement with mr. bernanke and his loose money policy. but the question i would like to ask, does the fed relies the terribly destructive impact you have had on sabrevers in this country by reducing interest rates, waliñrfraudsters in this country are being rewarded? guest: i understand your
frustration and one thing we're looking at is how to bring interest rates back to a long- term sustainable level from the extremely low levels. and there are differing views. i do share a different view. i think we should go back to a more normal level sooner rather than later, as i've said in my public speeches. and i think -- you know, my concern is in terms of the last time i voted, i voted on the usage of the word "extended period" because i think the economy will continue to improve modestly. we will be ableñiçto move back o more normal rates sooner rather than later. and i do not consider necessarily our interest to ensure the markets that rates
will yield play because that has the effect that also invites and sometimes excite speculative activity. that is what we have to be careful of. as we debate this, i think those are important things to bring out. in the end, hopefully we will come to the right solution at the right time. host: dr. hoenig got his master's and his ph.d. at iowa state university. how important is your relationship with congress? guest: i think they are ultimately responsible for our being in existence. i think there is a very important relationship there and in need to be responsive to the congress of the united states. now, congress knowing that if you put the printing press with the spending, you are going to get bad outcomes, gave the
federal reserve a certain degree of independence anthem structured it in a way -- of independence and the structure did in a way so that you could take a longer-term view of things from a policy perspective. it is a very important relationship, but somewhat independent from the daily pressures of politics, so that we can hopefully, over time, come up with answers for the right kind of stability for the u.s. economy. and for that matter, because our economy is so in portland -- is so important, it affects the world. host: on a professional level, is health care reform important to you? guest: on a professional level, is certainly is. and it has to be looked at because of the future liabilities that come with medicare and with the baby boom
population and during their retirement years. those are important because they will impact the budget, the fiscal deficit, and the total amount of debt outstanding that will affect monetary policy in the long run. a solution there is extremely important for all of us from a long-term economic perspective as well. as far as how and what, that is up to congress and the administration. but it is important that we solve it. host: bruce from knoxville, tennessee. caller: who is on your board of governors? guest: on the board of governors in washington? caller: in your area. guest: oh, the board of directors. we have nine members. we have an individual from omaha who is with the labor unions, an
individual from kansas city that is in the grain business, a food processor, we have a bookseller from oklahoma, a rancher from wyoming, a banker from denver, and a banker from ashland, neb., and a banker from kansas. it is a very diverse, both in geography and professions. host: why do you ask the question? caller: the reason for the question is i wanted to know if someone from the financial side, how many financial side individuals were in there. the next question i have for you, sir, is that you had mentioned you are against what was going to be happening today, but you did not say anything about the role and the accountability of the federal bank. and another quick question --
host: we are running out of time. we will leave it right there. thanks for calling in, though. guest: the first part of your question, there are three bankers on our board of directors, and they are very important to us because they have insight into what is going on in the banking industry and they are very helpful to us. they are separated from supervisory activities. i think that is important for you to know as well. as far as accountability goes, the board of governors in washington has general oversight of our federal reserve bank and, also, the congress of the united states can change the structure, as is being discussed in one dimension ran out, if it should decide to do so. there's a great deal of accountability of the federal reserve banks to its board of directors, that is, those people who live in that region, to the board of governors, those people
who live in washington, and to the congress, those people elected by the american people. host: lake placid, washington. caller: the federal reserve is nothing but a big scam, created in 1913, to stabilize and help prevent inflation and unemployment. it has failed at both of them. what it really does is usurps money from the working class, puts it into the banking system, and does that by inflating the economy and in deflating the economy. guest: i'm sorry you feel that way, but the federal reserve's mission, as a sign by congress, is to look to the long-term stable growth of the economy and to maintain stable prices. the economy has a lot of moving parts and we are one element of that. the nation is affected in terms of was going on fiscal policy
certainly affects it, and those will all play roles. the reason you have these 12 banks across the country, and one in the center of the country, one in the south, one in the north of the country is to gather information from the broad population of those regions and feed that into the policy-making. and also, to be able to communicate back. it would be a tragedy to give that up. an economy has to have money and you can go to the gold standard, but if you look at the history, you will find they still have deflationary. i'm sorry you feel that way, but the federal reserve is really a necessary part for an industrialized country like our own. host: there are some rumors are that he might be the next treasury secretary. do you know where those started and what do you think about them? guest: those are always fun to hear about. my job is to do a very good job
as president of the federal reserve bank of kansas city. and i think to be independent- minded in that role and to put my views forward. part of that came because someone agreed with one of my views and, therefore, said i should have that job. i think a couple of callers might not agree with that as much. host: you work with the treasury secretary's? guest: i do not work closely with them. we are independent. although, i do know t >> said saturday, and look at thursday's white house health- care summit. our guest is david kendall. after that, richard dekaser discusses the u.s. housing market and falling to new home sales. later, jina moore of the
christian"science monitor" about how property has changed life and politics in africa. we take your calls and the mouse live every morning starting at 7:00 a.m. eastern here on c- span. -- we take your calls and emails live. >> cvs vs. fcc indecency case. iis served -- the third circuit court of appeals is deciding if the fcc's policy on nudity and it's the first amendment. that airs saturday at 7:00 p.m. eastern here on c-span. >> he is best known for his novels "animal farm" and "1984." this is part of c-span2 booktv
weekend. >> president obama call for more funds for historical black colleges. african-american leaders and students joined the president at the white house for a 15 minute signing ceremony. >> ladies and gentlemen, to introduce the president please welcome mr. bryan's smart. -- bryan smart. [applause] >> historical black colleges and universities provide the nation with an irreplaceable and unique source of compassionate and change oriented scholars prepared to meet the country's and the world's most urgent challenges. my school, howard university, a
premier national institution educating a predominantly black student body represents a new and wider field of human resources with renewed commitment and increased support. is this support -- it is the support that enables me to stand here today as my family's third generation of hbc's joints. we study and work in the country's most multi-cultural, the verse, and challenging universities. we believe that this president whose life turning mirrors the values, aspirations, and excellence exemplified by all hbcu's. ladies and gentlemen, the 44th president of the united states, mr. barack obama.
-- the 46th president of the united states. [applause] >> thank you everyone. please have a seat. thank you everyone. it is wonderful to be here. thank you for the outstanding introduction by mr. smart. i was complimenting his bow tie. [laughter] i want to thank all of the student leaders from hbcu's and some of the fantastic men and women i have named to serve on my hbcu advisory board. thank you to all of you. i have a few members of congress that are in the audience that i want to a knowledge.
at least i think they are here. first of all, one of our outstanding leaders in the house of representatives and the whip, james claiborne. he is right here. [applause] one of the deans of congress and chairman of the judiciary committee -- [applause] a great friend from maryland, -- [applause] the chair of the congressional black caucus, barbara lee. [applause] the champion on behalf of the d.c. statehood or at least voting rights, representative eleanor holmes.
[applause] congressman scott from virginia. [applause] one of our four worst experts on foreign policy from new jersey. and one of our foremost experts. house went to a knowledge the president of morgan state university. -- i also want to acknowledge. [applause] a great friend and the president of the hampton university, dr. william harvey. [applause] i promised him i would come back to him since i will be speaking at his commencement this year. [applause]
the trojan explosion drum line from virginia state university. [cheers and applause] i am told this is the first time there has been a drum line in the white house. [laughter] this is what i have been told. before the civil war and the creation of what we call the historically black colleges and universities, and education much less a higher education was not possible for most african- americans. reading and writing were often taught in secret. as the civil war ended the 13th
and 14th and 15th amendments were signed. the war on the literacy and ignorance began. there were some like booker t. washington, who walked from west virginia to studied at hampton and argued they should focus on teaching blacks skilled trades and vocations. there were others like w. e. b. dubois you can the first african-american to earn a doctorate from harvard who advocated for arts and sciences to cultivate leaders of the next-generation. today at america's 105 historically black colleges and universities, our men and women prepared to do both. there are the campuses where people are educated, middle- class was built, where dreams took cold, places where generations of african-americans
came to visit their heritage, history, and their place in the american story. like all colleges and universities, hbcu's face tough challenges. endowments and state budgets are shrinking and too many facilities are deteriorating and enrollments are falling. the cost of education keeps going up. the schools feel the pain more acutely. they do more with less and heart -- and enroll a higher proportion of lower and middle- income students. that is why the recovery act that was passed last year invested in their infrastructure and technology and nearly doubled the pell grant award. that is why the budget i proposed increases hbcu funding by nearly $100 million in the department of education alone. hbcu has chartered a new path in this century and will require more on all of our parts. i am signing an executive order
strengthening the white house's initiative on historical about colleges and universities. -- historically black colleges and universities. [applause] this initiative originated in president carter's administration and expanded under reagan. it was renewed by each president sends to help the schools give their students every chance to live up to their full potential. i have asked dr. john wilson of morehouse and dr. harvey to serve as chairman on his advisory board. i want to be clear. a strengthening america's historically black colleges and universities is not a test that falls to these men or the department of education alone. i expect agencies across the board to help support this mission. we are not doing this because the schools -- well, we are not
only doing this because they are a great -- a gateway to a greater future for african- americans but because it is vital to a better future for all americans. we know that americans with college degrees far out earned those without them. we know that our business is too often cannot find qualified candidates for open positions. we know that other countries are out educating their children to out compete hours. year after year, a stubborn gap persists with how well black children are doing with their white classmates. year after year, those students who do make it to college often find themselves unprepared for its rigorous this. that is why education reform has been a topic priority. -- unprepared for a rigorousness.
this inspires students to excel in math and science, it turns around failing schools that steals the future from too many young americans. we are working with governors and states to implement standards to help all of our children graduating prepared for college and careers. i urge the senate to pass a bill to make college more affordable by ending taxpayer subsidies that go to financial intermediaries for student loans. revitalize our community colleges to serve as clear pathways for students of working families. i have asked for more than $2 billion including hbcu's. all this will help achieve our goals to help assure that america has, once again, the highest proportion of the writers in the world by 2020 keeping our hbcu's is vital to achieving that goal. still, there are some who
question the continued relevance of hbcu's, that they have a so- so their purpose and with all the progress we have made the reason for them being here is now obsolete. it is because of these schools that a young pranksters discovered a sense of purpose that led him alternately to sit on the supreme court. it is because of these schools that young broadcaster with a funny name, oprah, could make that name into an empire. it is because of hbcu's at a young preacher grew into a king and shared his reign with all of america. it is because of these schools that america's middle-class was built with black doctors and educators, judges, engineers, and entrepreneurs. today, it is because of these schools that one out of every two freshman arriving on the campus with big backpacks and dreams is the first in his or
her family to go to college. that is why we are here today -- to ensure the schools remain the beacon they have been for more than 150 years. where students discover their full potential and forge the character to realize it. the catalyst for change were young people with their hands on history and move this nation closer. were each generation inherits the american dream, keeps it alive for the next. that is why -- that is what i hbcu's for about and why i am proud to sign this executive order. [applause] [laughter]
also, a look at small business mortgage lending. the world bank president talks about his organization's role in the global economic recovery. >> house speaker nancy pelosi talk about jobs legislation and the white house health care summit. the news from birds is 20 minutes. -- the news conference is 20 minutes. >> thank you. thank you. good morning. what were you up to yesterday? were you watching tv? it is funny how people react to things. everybody commented on how crowded the room was. i did not even notice. was that an issue? i do not know. we were focusing on health care
yesterday, the president brought together democrats and republicans used -- to explore areas of agreement and seek out common ground. as you may recall, when you're go on march 5, 2009, the president -- one year ago on march 5, 2009, the president started this conversation. it was a great day with house and senate democrats and republicans, outside stakeholders, consumers, and the biggest presence was senator kennedy. he came into the room and said he was there to enlist as a foot soldier in the fight to campaign to pass health care reform. it had been his life's for -- it had been his life's work. he would later say it was not about the policy, but about the character of our country. many of us carry that with us as we go forward and have gone
forward in this campaign and brought it to the table yesterday. we also brought to the table the concerns that american families have when they sit down at the kitchen table to talk about their job security, education of their children and how they can afford that, their pensions, and how they're going to pay their medical bills. we must always be mindful of that, that what we do is relevant to their lives. i am so proud of the president's presentation. for those of us involved in this issue for decades, to see the encyclopedic knowledge he has of the issue -- that he knows on the subject and the position that he has -- she wants to build consensus. he started not only in -- he wants to build consensus. he started that only six weeks after his swearing-jan and continued it -- swearing in and
continued it in. eat it still has the vote -- it still has the vodoor open. coakley we can find -- hopefully we can find more areas of agreement than the 150 or so amendments that the republicans have put forth. any others that we can accommodate, we certainly will. i am not of the school that does, unless you look for the bill, we're not going to extend your amendment. if they have an idea that works for the american people, bravo, we welcome it. if you want to know what i thought, i think it was clear that -- to good things were clear. that the president clearly has -- two things were clear. that the president clearly
recognizes that we must have some regulation of the insurance industry -- we have to go beyond the status quo. it was clear also that the republicans were accepting of the status quo. i was very proud and mentioned that on wednesday we passed in the house with overwhelming bipartisan support -- i think it was -- it was 406 to 19 to remove the exemption for it health insurance companies that they had had for over 60 years, which has not served the american people well. i think left to their own devices, the insurance companies have behaved very poorly, and the american people have paid the price. this legislation is essential. one other thing that we talk about -- what we talk about
ending the denial of coverage on the basis of a pre-existing conditions, which is probably the most-needed and desired reform that the american people recognize and want, is something that democrats stand fully behind and the republicans do not have it in their bill. when they say they support it, you have to support the underlying bill, if you are going to have that prohibition on discrimination against people on the basis of pre-existing conditions. if you do not, you are giving the insurance companies to license to buy up the prices. this is about lowering costs, improving quality, expanding coverage. i am excited that we can move to a place to accommodate suggestions that people have, using the president's proposal that he put on the internet on monday, and go from there and
talk about what is in the bill. not the controversy around the bill, but what is in the bill. it is about the future and innovation and prevention and a diet, not diabetes, help the americans -- healthy americans. it is very exciting because it will take us down and new different path that allows for perspective -- effective initiatives to take hold, rather than just building and what we had done before. it is new and innovative and pretty exciting and i look forward to where we go next. we want to accommodate whatever suggestions there are using the president's proposal. that is a good place to build upon because he took what he saw at the houses suggestions and the senate's suggestions and listened to some republican ideas -- and they are in this
senate and house bill anyway. i would like to make a further point -- that the other debate you saw was "start over" -- "eensy-weensy spider" --but you cannot do it. it does not hold the insurance companies accountable. i was very pleased with how the president, of course, but also the members made it very clear -- senator harkin said it best, "is like somebody is drowning 9 feet out and you throw them all wrote that is only a foot out. everybody who spoke yesterday spoke about stories they had with differing peoples they had met or constituents or family members or letters they had
received about how the medical bills were pulling them down, not only health-wise, but economically. again, we will be -- i think the seven hours made a difference. i think it moves us closer to passing the bills. it meets the aaa standard of accountability of the insurance companies, accessibility, many more people, and affordability. with that, i would be pleased to take any questions. >> i am sure you know that the ethics committee has admonished charles rangel. given that you have promised to run the most ethical and honest congress in history -- >> and we are. >> do you think he should step down? >> what i understand -- i do not think the report is out yet -- it is? all i saw was the press solely
swear i saw that they said he did not violate the rules of the house -- press release where i saw that they said he did not violate the rules of the house. there is more to mr. rangel's situation and we look forward to hearing from the ethics committee on that. >> they did admonish him and said his staff knew about the corporate funding for these trips. >> and they said that he did not. and they said this press release shall stand as the admonishment. that is what i read. >> do you think it ends there? >> no, i think there is more to it -- obviously they have more to deal with. i thank them for taking this action and hope they will take additional action soon. they did not take action against him. it said he did not willfully break rules. we will see what happens next and what comes out of the at the committee next. but you talked about abortion --
>> you talked about abortion funding yesterday. would you, based on your possession -- assessment say that mr. stewart back -- mr. stupak is wrong? >> let me say it this way, there are three standards that we are using as we go forward. i talked to the catholic bishops about this and people on all sides of the choice issue. the law prevents the federal funding of abortion. there is no federal funding of abortion in this bill. there will be no expansion or diminution of a woman's right to choose. we're determined that we're going to pass health care reform. this bill that passed the senate does not have federal funding of abortion. that would be the language. >> it is an open secret that you
and harry reid gone through -- have gone through a difficult process called reconciliation. you think it is possible for reconciliation and how was that process forming? >> it is a simple majority that we're asking the senate to act upon -- it is up to them. here are the three steps. what is the substance? that is what we will put together and we did not want to do that before we could hear from our republican colleagues yesterday. secondly, what is the senate able to do with a simple majority? then, we will act upon that. i believe that we have a good prospect for passing legislation, in light of the recognition the president gave to the concerns of the house members. that would be affordability for
the middle class, closing the doughnut hole for seniors, ending the nebraska 6, and make this having equity for all states, and change the pay from the excise tax. that was a very big -- we were eager to see what the president would put forth. we did not know exactly what it would be. we saw at the same time as you on the internet. that is a big step forward yesterday and it took us further down the past. now we will put something together and harry reid will see what he has to -- what he can get the votes for, and then we will go from there. >> do you think you'll be able to pass the bill through the house? memo when we see what the senate is able to do. those were the major differences between house and the senate bill.
75% of the bills are the same underneath. >> can you explainçó what th]ì(+ ¡cess is goinuvo lookw3xdñrñiñró over the nextñr weekñi or 10 da? you mentioned willingness to accommodate other ideas. how will that -- how do they have a voice in the process? what do you expect to see as you try to build towards a new proposal? >> some of the ideas -- i do not know, i hope that we can get republican votes. it does not matter. if we have a good idea that works for the american people, we should try to incorporate it. quite frankly, whatñi we heard from republicans yesterday was about process and "let's start all over." for those who made suggestions, they talked about selling insurance across the lines, the nature of the exchanges. it was not a question of whether
there would be in exchange, it was what are some of the exchange's we can make? that gives us the opportunity to say we have come a long way since last march 5. i do not know if you recall, but senator grassley at the time questioned the merit of a public option. you know it remains very popular in the public. the president said at the time that he believes the public option is a good way to keep insurance companies honest and create competition. if you have a better idea, put it on the table. whether it is a better -- i do not think it is a better idea, but it is an idea to have the exchanges. it does not say that the same kind of money that having a public option wood. yesterday, it was interesting to me that -- public option would.
yesterday, it was interesting to me that -- we know that olympia snowe and dick durbin had an exchange. there may be language that could be helpful across state lines. we will see what else. they did not have many other ideas except, "let's start over." "i do not like the process." that was not for dial territory for us to incorporate in what we're doing -- that was not fertile territory for us to incorporate in what we're doing. without the substance, it is -- we cannot go to the next step. the next tepper requires us to see what the senate will do. -- the next step requires us to see what the senate will do. we can wait and see if it will
accommodate the changes the president has put forth before we go to next up. we will keep you posted along the way. >> how do you breplan to proceed and how you see the broader jobs agenda developing? >> as you know, we passed our jobs bill before christmas, that we thought was urgent at the time. it is urgent now. i think -- i know what you will see is a segmentation. there will be this jobs bill that we started with with investments in infrastructure, energy, transportation, the tax credits for hiring for small businesses, as well as the accelerated depreciation in that bill. the next bill -- we have to address in the next bill that, upon the fact that -- that come
up -- we have to address in the next bills that come up, -- it s hard to understand why one senator is holding up the extension of unemployment insurance at this time. but he is. i am pleased that senate the democrats are trying to make a move to dislodge that. you will see segmentation, instead of a bigger bill. ask them why they are going that route. it is ok with us as long as we get the bills and. -- the bills in. >> i know you said you are waiting for the ethics committee. does this year's flooding over whether it was mr. rangel or his staff -- - 3wñidoes not this hr
splitting over whether it was mr. dingell or his staff -- does not contradict -- mr. rangel or his staff, does it not contradict your promise? >> we will wait to see what happens. every member has the right. i think it is quite a statement to hold members accountable for what their staff knew. i would be interested to see how that reverberated. we have to see how it goes and be responsible for that. ross is very much. -- thank you and very much. thank you very much. >> i was wondering how much --
>> he captured a great deal of our work. the president put forth? we will wait to see how it translates into legislative language for the clarity that we will need. i want to make sure there is enough on affordability. >> thank you. >> for the middle class. [laughter] >> the house ethics report says that congressman charlie rangel violated rules by accepting trips to the caribbean, and some are calling on the german to step down from that post. -- on the chairman to step down from that post. >> a couple of house members -- paul bowe who is running for a e seat in new hampshire, another
from mississippi, and an alabama representative who are all saying that -- they are not saying he should resign from congress, they are saying that with the investigation of him continuing by the ethics committee, after being e nmeshed, maybe he should give up his post until the situation is resolved. >> which democrats are still in his corner? >> speaker pelosi has not joined the call for him to step down. though she does acknowledge there is potentially more coming. i would say his driver support remains with the congressional black caucus -- i would say his strongest support remains with the congressional black caucus.
a lot of members are on the fence and did not want to talk about it today. they would say, "i have not seen the report." i have not fully digested what it means. i would say that support is not strong. i do not think there is enough of their -- i do not think there is enough but opposition to remove him, but i do not think it would take a lot to tibet the other way. ñiwe're -- paul hodes -- to tipt the other way. >> what is mr.ñi rangel saying? ñi>> he feels that he has been exonerated. there are documents that say that he knew they were poorly funded -- were corporately funded. he is claiming that he is exonerated and that someone involved has now left his
office. it is clear that he has not yet been exonerated and that the committee thought that he was responsible for violating the house get roles, even though it was his staff -- house gift rules, even though it was his staff. he was the only member the investigated to they took any action against. it is a major blow to him. it may not be enough to topple him, but it seriously undermines his support. if anything comes out of the ethics committee in the long term, and they are investigating a number of areas involving his personal finances, i think he is pretty much done. bet if he stays on as chairman of the women's -- >> if he stays on as chairman of the ways and means committee -- he is done? >> i am not saying he is done yet, but if they come out with
additional findings -- and they are investigating a number of areas in his personal financies -- if there are any other violations, he will be done. i do not see big enough opposition to remove him at this point. >> what has he done as a member of the house? >> that would be another issue. mr. rangel has been in the house for 40 years and is extremely well known within his district. he is a korean war veteran. he deserves to remain in congress, he could argue to his constituents. if he is stripped of his chairmanship, it would seriously damage his political viability. it would be tough for him to make the argument to voters back home that he needs to stay in
congress. he has some primary challengers, including a 48 -- a former aide. for a lot of voters, charlie rangel is the only person they have ever known in voted for -- ever known and voted for for congress. it is too early to tell. i have not seen any polling. i do think, if he lost his gavel, then that would be -- a serious blow to his credibility and viability down the road. >> thank you for joining us. >> thank you for having me. >> this sunday, on c-span, congressman george miller weighs in on whether charles rangel should remain the german of the house ways and means committee.
-- the chairman of the house ways and means committee. ñr>>ñrñrñiñi sometimes youñiçó o difficult things. i could make a case for having to step down and why he is entitled to his day in court. our process may not be perfect, but it is the ethics committee. i would hope they would wrap up their work as quickly as possible and as early as possible and then allow the congress to make a decision. that is what he is entitled to. >> as a german -- chairman, can he continue to be effective in that position? but it makes it difficult. there is no question about that. -- >> it makes it difficult. there is no question about that. this all just happen on friday. we haveñi to review that. it is important to review that. we're not dodging the issue. we are trying to do the right thing. we know the right thing, in a
heated political environment, it is very difficult to do. them and you can see the rest of congressman george miller's interview -- >> you can see the rest of congressman george miller's interview on sunday on c-span. >> sunday on c-span, a replay of the entire white house health care summit. you'll hear the opening comments from the president and congressional leaders, followed by discussions on health care costs, insurance reforms, a deficit reduction, and expanding coverage. it starts at 10:30 a.m. eastern on c-span. > next, a look at mortgage lending practices for small businesses. following that, the world bank president talks about his organization's role in the global economic recovery. also, remarks from new york gov.
david paterson on ending his campaign for governor. >> the new c-span video library is a digital archive of c-span's programming from barack obama to ronald reagan and everyone in between. over 157,000 hours of c-span video is available to you. it is fast and free. try it out at cspanvideo.org. >> next, a look at small business lending practices. obama proposed transferring money into a federal fund for lending to small businesses. now, a steering. it is an hour and 20 minutes. -- a hearing. it is an hour and 20 minutes.
>> we are going to move fairly quickly. we have three panels. the regulator panel will not lead off. they are coming second. we did not want them to state their case and then leave. we wanted people who have questions that we need them to address to speak first and then others who will speak after. borrowers, regulators, lenders. because there are a large number of members, we had originally planned as on another date.
it was argued for having it on a day when there would be no time pressure. unfortunately, we got as now -- we got snowed out. we have agreed there will be two hours for each panel. we will keep the opening statements very short. you have just heard mind. with that, i want to callñm/ oe gentleman from missouri who is the ranking member of the small business committee. we will go to the gentleman from missouri, then from new york. >> thank you, mr. chairman, for holding this importing hearing on the ability of small businesses to obtain needed capital. given the continued economic difficulties, america will be reliant on the agility and resourcefulness of this country. they need to create jobs and
lead long-term stable growth. to accomplish that goal, america's small businesses need capital. whether it is buying purchases or obtaining equipment -- the american economy will march on capital. there is no doubt that the current environment for raising capital is different, even for the largest businesses with aaa credit ratings. that is when they have to compete against the voracious appetite of the most creditworthy borrowers in the world -- the united states government. i can imagine how difficult it is for small businesses to find capital. the committee has held a number of hearings in which entrepreneurs testified about their ability to obtain immediate debt capital. some talked about lines that were reduced. some or even several complete with no explanation. others mentioned it could not find capital at all. at those same hearings, bankers testified they had credit available and were willing to lend.
there were so concerned about regulators that they were still keeping their capital. in these situations, the programs are supposed to kick in and help small businesses obtain needed capital, however, even sba capital programs have shown signa be reduced lending activity. further efforts to inject liquidity -- have showed significantly reduce lending activity. the cost of capital may be so high that some person -- some business centers will not take the risk. we have heard from people all over about their ideas for making affordable capital available to america's entrepreneurs. i would like to hear what the regulatory actions -- what regulatory actions are needed that will allow capital to small businesses without reason there wrists. i thank you for having us here. -- raising the risks.
>> thank you. thank you for agreeing to hold these joint hearings. earlier this week, the fdic reported that last year they saw the largest annual declines in landings since the 1940's. congress and the administration have taken a serious attempt to restart the small business credit market. the top -- the tar program was launched to shore up banks. -- t.a.r.p. program was launched to shore up banks. while the steps we have taken have helped, the flow of credit is not where we needed to be. a recent fund said that 10.8% of banks have cost -- have cut
small business lending. lending is down 30% from 2007. they continue to struggle to find credit. most efforts focused on getting banks to lend. if we're truly going to open up financing options for small business, we need a more balanced approach. that does not mean doing more for financial institutions and expecting the benefits to trickle through two small firms. taking $30 billion and simply handing it to banks in the hopes that they will make loans is not sound policy. allowing lenders to make fewer loans that are bigger is an equally questionable strategy. entrepreneurs can go out and find affordable sources of financing -- until then, we will not see the type of job flows our economy needs. small businesses are our best
job creators. during economic recovery, this job-creating potential is even more important. ñifollowing the recession of the ì(53 created 3.8 million jobs. outpaced big business growth. we want to put americans back to work. as we pursue policies to get credit flowing again, we must get it right. our economic recovery depends on it. i hope that today's hearing will take a hard look at proposals that may help us make wise decisions as we move forward. thank you, mr. frank. >> i thank the chairman and would urge the administration --
the jurisdiction is shared. in my view, it has to be done together. i urge the administration to work with the chairman. and now the man from alabama. >> i do not have a statement. >> we will begin with the panel. i will ask the gentleman from idaho to introduce our first witness. >> it is my pleasure to introduce one of the largest and most efficient of residential real-estate developers and idaho. he is going to talk about the difficulties of obtaining financing in the current market. >> please, begin. >> thank you.
i appreciate the invitation and the opportunity to testify before you today. i am the president and owner of a diversified real-estate firm in boise, idaho. in art -- in addition to our activities in idaho, we have activities in other states. our real estate development activity spans both commercial and residential, which makes us a little bit unique. given the nature of our business, i have been a ground zero witness to the series of ourñr economic events that have brought theçó economy to its knees. i watched the formation of our residential real-estate bubble that was inflated by cheap credit, fragile underwriting practices, and inadequate credregulation. it was not supported by underlying fundamentals. the correction was inevitable. what was avoidable was the death of a correction and associates collateral damage -- was the depth of a correction and
associated collateral damage. i shook my head in wonder. everything i saw or run the was deeply impacted byçóñi the housg market. -- everything i saw around me was depleply impacted by the housing market. it was our depression, not recession. the first office least i did in 1990 was at a rate of $13.50 per square foot. we were doing office leases for $18.50 per square foot. at a compounded annual increase of just 1.7%. those are not the kind of numbers that suggest a bubble in the commercial real-estate market, at least in our market. as another example, i sold an office building in 2002 for $2.7
million. the replacement cost and that building, even in today's depressed market, would be $2.2 million. the same building went into foreclosure last month and fell to sail at a credit option -- sale at a credit auction at the minimum bid. that is indicative of what happens when it becomes an all cash market where credit is not available. bell you can fall below replacement cost by 30% to 50% -- values can fall below replacement costs by 30% to 50%. it provides for the democrat ization of credit. it should provide credit at the most reasonable rate possible.
all they have reconstituted the markets for some areas, it is still structured to resurrect the secondary credit market. but the market requirements are so complex that it is only realistically available to the most sophisticated and elite buyers. there must be characteristics not required under the now defunct system. çóxdbond issuers who are respone for underwriting the debt must maintain a significant level of brrisk. rating agencies must be accountable for what they issue and should be compensated by the per sure -- purchaser. services must be authorized and given the tools to deal with troubled assets within the security pool. initially, federal guarantees
will be required to stimulate the formation of a functional market. the guarantees can be phased out over time as the private sector gains confidence in the system, the system destroyed recently, and replace the need for federal brparticipation. consider this -- without the existence of fannie mae, freddie mac, and the fha, we would not have a housing market today and we would be in a full-blown depression. the only equivalent we have for these is this program, the equivalent of the fed creating a super-jumbo market for commercial real estate. if we did that in the residential market, we would be leaving the entry level to medium home price buyers in the lurch. too much time has passed without adequate resolve.
the regulatory agencies should move expeditiously to pass necessary legislation or regulation needed to reconstitute the commercial mortgage-backed securities market. the lawyer to do so will result in further undervaluing -- that failure to do so will result in further and valuing -- undervaluing. >> the chief executive of united statesñiñpi chamber. >> i thank you for this opportunity to be here today. i represent the 500,000 members of the chamber of commerce. the status of small business lending is so devastatingly poor that many business owners have given up on trying to secure capital credit for their businesses. members tell us that regardless of their personal credit scores,
proven business and financial records, and contracts in hand, their access to capital and credit have become severely limited. fees and interest rates on their iexisting loans have risen too long chart levels. -- to loan-shark levels. small business losses accounted for 40% of the losses. it provides us with a clear picture of the small business lending marketplace. the smallest businesses have been wiped out or are struggling every day to stay in business. businesses in the 250 to 5000 range are weathering the storm. firms in this range tell us they could grown-up and add jobs if they could only access the capital and credit they need.
many businesses in the $500,000 to $1 million range have been very challenging growth. they have no assets to fuel growth. firms with over $1 million have a more diversified group of providers. they have little appetite for growth due to the uncertainty and exorbitant rates. nearly all businesses say the consumer competences is extremely poor. increased consumer confidence would fuel their business growth. if we could complete the reform of health care and create a strong consumer financial protection agency, they will have upa clear picture of the future and can plan with confidence. u.s. banks reported the sharpest declines in lending since 1942.
another troubling trend is the extreme contraction in lending to women and minority-owned firms. between 2008 and 2009, the percentage of those dropped from 23% to below 20%. the total dollars lent drop from 18% to dilute 16%. -- the total dollars lent dropped from 18% to 16%. the job creation legislation recently passed in the senate falls woefully short in addressing the size and scope of our problem. the recent fdic comments on meeting the credit needs of credit for the small businesses do nothing to change the basic problem. the president's proposal to distribute $30 billion of t.a.r.p. funds is simply more of the same. clearly, this action would once again benefit the banks with no guarantees of assistance to small business owners.
the treasury secretary has said these funds should be removed from the tar program -- part -- t.a.r.p. program. he said many removed their applications because they did not want to face the ñiñiñirestrictionsñi or the per. we recommend thçóincreased sba lending guarantees to 90%, focus on the sectors with the greatest urgent need -- loans under $200,000 and in the next category up -- establish a direct lending program through the sba, allowing a scale back of loans to private sector ñiinvestors andçorñr lenders afe time. ñiwe encourage congress to respd with larger scale solutions to improve the opportunities of businesses to secure capital and credit, help stabilize the cost,
help small businesses to convert into fixed-term loans and help them make good choices for the future. transparency, access to capital, protection from abuse -- they are vitally important so that our economy may be revitalized and our small businesses brought back to life and jobs created. thank you. >> thank you. next, the president of another corporation. >> madam chairman, mr. chairman, distinguished members of the committee -- thank you for inviting me to testify this morning. i am from clearwater, florida. i am honored to be here and to deliver this testimony before the congress. i am here as the voice of regular small business owners who have historically been the largest creator of jobs in our country. we are frustrated with the inability to obtain financing to create critically needed jobs. jobs can only be greeted with
capital. the build out the banks are not helping -- the bailed-out banks are not helping. banks are taking away existing credit lines. while this may be prudent for self preservation, it lowers your credit scores and a then increase our rates. consider my story -- i am the owner of a small business that manufactures water devices to save water. they cost us less than $10 and we of sold over 800,000 units. globally, we could sell 200 million units. we could create many jobs now and 75 more of the next three years. as we grow, 25% of our employees will be people with disabilities.
we challenge others to match this commitment. we will create jobs for our suppliers and distributors. we're ready to move forward and implement our marketing plan. this will not happen without the necessary capital. innovation is what made this country an economic leader. people with innovative ideas grow them at huge personal expense in pursuit of the american dream. yet, when the time is right to grow beyond their individual means, this creative endeavor is also not judged for its dismalñi -- for its business plan or what can do for the country or what can do for the environment, not for the jobs it will create or for the potential increase in export sales -- it all comes down to your credit score. the current lending model does not work in today's post-crass economy -- post-crash economy. we're in for a long painful recession if we depend on banks.
they cannot figure out how to solve the foreclosure problem. we need to change our strategy. the government must take responsibility and solve the capital crisis. congress lent directly to the banks, the automakers, aig -- it is time for a similar program for small business. i propose that congress pass legislation to make as b.a. a direct lender to small business. any money approved should be kept in a separate account. the american people do not want to give any more money to the banks. the real estate crash, the recession, and the banks have lowered its credit to most americans. credits course cannot be used -- credit scores cannot be used as the sole factor. i am proposing a new criteria. some of the key determining criteria are, how many new jobs
will it create? how many jobs will be created for disabled americans? will this help protect the environment or conserve natural resources? will the product or service be produced in the knighted states and can be exported -- in the united states and can be exported? has the applicants economic situation been dedamage? capital is the tool the drives american business and we need your help. please roumove quickly to resole this. a message to the american people -- congress needs to put an end to it partisan behavior. it is time to find compromises. in the business world, we get things approve with the majority. as a reminder, there is no r or d or i in
americans have been so proud of the olympic team -- a teen usa -- team usa. we request that congress pick up the pace and immediately take action to solve the jobs crisis. please come up pass health care reformñi for the 45 million americans who do not have health insurance. thank you for giving me the opportunity to be heard on these very important issues. >> next is the foundation from george mason university. >> it is my pleasure to testify today on the commission. as noted in a recent study, he reminds us that many independent entrepreneurial businesses rely on what is conventionally known as consumer credit to start building their business -- things like credit cards, home- equity loans, and others. these are especially important for women and minorities who
tend to be excluded from traditional small business lending markets. as a result, a lot of regulation thatçó seems to be extensively n the consumer lending will also tend to disrupt small-business lending. pertinent, well-designed consumer regulation -- government regulation can promote competition going to expand consumer choice, lead to lower prices, and the things like the original truth in lending act, as it was originally conceived provides a good example. well-intentioned regulations may have a large number of unintended consequences. most relevant to this hearing -- one of thosexdñi intendedñiñi -- lending. unintended consequences are most likely and most severe when regulation goes beyond the modest goals of improving the market process and instead
supplants individual choice and competition to the substantive -- it is basic economics that a bank has to considerations. it must be able to estimate the risk of a long and price alone accordingly. regulation that increases the risk of lending or makes it more difficult to -- will make it more difficult and expensive. if the bank can and accurately price alone, they have to reduce their risk exposure. -- if the bank inaccurate txdçóy pricesñi a loan,ñi they have to reduce their risk exposure. provisions in recent legislation have made it more difficult for credit-card issuers to price risk.
the consequences have been predictable. credit-card issuers have tried to adjust other terms in order to try to continue to price risk efficiently. they have acted to reduce their risk exposure when they have been unable to do so. they have offered fewer loans and reduced credit lines. if proposed legislation is enacted, it will further exacerbate the credit crunch and increase the risk of lending, making it more difficult to price risk, resulti&/ in a greater curtailment of lending. let's talkñrzv about a credit d act. it had some modest ladies and proposals in it that may have helped -- modestly useful proposals that may have helped
some consumers. new limitations on interest rate adjustments, deep fault provisions, that sort of thing. the market response illustrates how it can disrupt the credit market. consider a few of the terms of the credit card. interest rates, annual fees, the amount and circumstances on which the fis will be assessed. i could go on -- on which the fees will be assessed. i could go on. it places limitations on the borrowers. it tries to price risk accurately and offset declining revenues from newly revenue -- nearly regulated credit-card terms. -- newly regulated credit card terms. they have created a conversion
of cards and become stingier in other fees. notably, some provisions make it more difficult for card issuers to raise rates on consumer is based on risk and changes in economic circumstances. the market response has been predictable. credit-card issuers have raised rates on all card holders in order to guard against the risk they might meet later. most relevant for this hearing, there is a widespread result of the credit card act -- they have slashed credit card lines. it reflects the effect of the act. memo i recognize the gentleman from michigan -- >> i recognize the gentleman from michigan who will introduce legislation. >> we are joined by the gentleman from michigan who is
representing small manufacturers. many small businesses have been impacted by the credit crunch, but it has been particularly acute for our small manufacturers. he is the owner of a manufacturing company and of member of the board of the community bank, bringing a unique perspective. his company employs 250 employees, located in both michigan and tennessee. >> thank you. >> i am the president and owner of a manufacturing company. i serve on the board of a small community bank. i bring a unique perspective from both the borrower and the lender. i have been a manufacturer for 45 years. i appreciate the opportunity to discuss the challenges that small manufacturers and the motor vehicle industry face. my company is one of the
michigan, and athens, tennessee. my father began the business in 1962. it has grown to over 400,000 square feet of supplier. we read the first metal-stamping facility in the nation to be awarded for our outstanding safety programs and our determination to continue to provide meaningful employment to are now over 250 employees. .
>> as they aim to reduce their exposure to temporarily impaired companies -- most of the companies enjoyed a long history with their lenders, having successfully worked together for decades. our personal opinion is that lenders are under such intense pressure from federal regulators that they went from one extreme, flooding the market with substandard loans, to almost completely closing the faucet. i urged policy-makers to work with lenders and borrowers to reach a delicate balance needed to restore manufacturing in america and stimulate job growth. i do not believe regulators should ease their standards in oversight. i do believe that congress and the agencies can develop guidelines to govern loans to
small businesses. this would allow banks to fill comfortable to lend to manufacturers while establishing compliance rules. i applaud committees on capitol hill for holding these hearings and for various proposals from the white house and members of congress. it is up to washington to create an environment where small manufacturers can access adequate and timely credit and lenders can conduct sound transactions without fear of government reprisals. capital in the market is only one part. washington needs to strengthen oversight without stifling economic growth. according to the small businesses ministration, small companies comprise over 95% of manufacturing companies in the u.s.. yet we are often overlooked. on one side is the vehicle manufacturers, a dozen or so major original equipment manufacturers that dominate
world markets. on the other side is a dozen or so material providers, plastic providers. caught in between are some 300,000 suppliers that produce over the 10,000 parts necessary to make every passenger car and truck bicker it -- car and truck. suppliers have not provided small manufacturers with the capital and resources to supply -- to survive. banks with reduced capital positions are not in a position to increase loan portfolio regardless of enhanced collateral positions. this committee has before it interesting proposals that collectively will go to addressing the challenges faced by small manufacturers, the manufacturing modernization and diversity act and the small business loan program.
we will be pleased to work with committee members on the initiatives and legislation laid out in my written statement. i thank you for your time and efforts for making the millions of american manufacturing voices heard. i hope my message is understood and acted upon before it is too late. >> i want to ask -- to introduce into the record a package submitted to members of this committee. these have been looked at by all sides. is there any objection? if not, they will be put in the record. are there any other documents you want in the record? that will be included as well. as we go to the questioning, we have a large number of members of the panel. what i will do on the democratic side is give members the choice
of which panel want to talk to. as we get to the member, if you would prefer to defer and ask your questions of the other panel, that would be acceptable. i am going to save my question is for the regulators. i will therefore not be asking questions at this time. the gentleman from alabama -- members of the financial services committee, if you want to ask this panel, you can. there is no guarantee we will get to everybody anyway. >> a point of clarification -- can we ask this panel in question and the next panel? >> as republican members, you can do what you want. >> i think we will let everybody. miss dorfman, your and mr gordon's testimony was similar,
that we should lend money directly, bypass the banks. is that what i am hearing? >> will we find is the banks have not been lending and the best way to get money into small businesses would be to provide a direct lending program through the sba so that small businesses access those funds. >> what i propose, and this is the problem in banking today it -- you go in for a loan, you deal with a bank officer. he has no idea what you do as a manufacturer. at the sba, there are so many smart people. if you just set up a task force for jobs and had three member panels, one from a retired member and two from an sba person, they could call and in 30 minutes decide whether it is a good loan or not.
>> what i am saying is you want the sba to sort of -- >> i want business to be back in business loans. >> i understand your goal is to create jobs and get lending going. i think essentially you are wanting the sba to come in and loan additional amounts of money is because the banks are not doing it. >> because they are not doing it and because they do not understand business. it is a big problem. banks do not understand business. >> i understand that. >> i want the sba to work on it directly. >> do you believe that the banks or that the sba is as qualified as the banks to make decisions on lending and credit worthiness? >> i do not. i think they are more qualified. much more qualified. >> do you believe that the sba
would make much better decisions as to lending? >> i think that if you -- first of all that we have such a huge problem out there, we would have to -- >> i understand there is a huge problem. i want to focus on which one is better qualified. >> i think we need expanded criteria and the sba is more qualified. >> i would say that what we have seen, not just from the economic turndown but from years prior -- the banks typically go cherry picking. they will take the best looking loans. it cost the same for them to do a loan for $75,000 as it does for $10 million. in order to move forward, if we put the money to the sba to allow them to land, would we have to put in a program that would -- >> i understand. the sba would basically play the role that the banks have, as you say, not played by not lyndon.
>> i would like the sba to have a direct lending program for small business. >> how big do you to visualize that -- how big do you two visualize that program needs to be to do any good? >> if we take the funds the president intended to give to banks and turn it over to the spla, that is a drop in the bucket. >> $30 billion. >> to put it in perspective, $30 billion is 3% of the original money from the first stimulus package. the goal is to take 3% of the money and to create 70% of the jobs we need. it is just not enough. we would like to start there, but it is just not enough. >> if the loans are not paid back, who is arguably responsible in your understanding? is it the taxpayer?
>> at this rate, there are few defaults, when you take a look over all at what the sba lending has done. there is a relatively low default system. what we have seen with the bank's -- >> but if the loan is not paid back -- >> it would be absorbed by the sba. >> where does the sba gets its funding? >> we understand that it is taxpayers', but this is an investment in the u.s. economy. >> i am not arguing that, but it is the taxpayer on the hook if it is not paid back. is that your understanding? >> that is right. right now, the sba guarantees 90% of the loan anyway. the other alternative is to continue paying unemployment compensation. there is a 100 percent chance. it needs to be looked at.
if you do not act, there is a 100% chance -- >> another question if i can. are you aware that we are spending so much we are going to double the national debt in five years and triple it in 10 years? does that bother you? is that a concern? >> what we are doing here is we are investing in businesses to create jobs to get people off unemployment. it is a very important issue. if you do not understand why we mean -- why we need to make loans -- banks would move quicker if they were paying the weekly expense for unemployment. since they have no expense in the weekly check -- >> the gentleman's time has expired. >> ms. dorfman, the administration has proposed the creation of a $30 billion fund. if this proposal moves forward,
do you believe there should be penalties for lenders who receive money but do not make loans to small businesses? >> i absolutely do. i would also like to see some sort of penalty for the banks who are now "providing sba loans" that are not. we have seen a small business go in and ask for an sba loan. they are told they are not giving them. they are pointed to the higher interest rate. >> if money is supposed to help small businesses access to affordable credit, the branch that would take this money should use it to lend to small businesses. do you believe there should be a penalty for lenders to use the funds solely to increase profit margins on loans they would have made any way? >> absolutely. yes. >> mr. gordon, in the last year,
we have seen the government bailout aig, at gm, and chrysler, and give infusions to our largest banks, including goldmansachs. now the demonstration is proposing to cut another $30 million a check to banks under the premise that it will trickle down to firms like your own. do you believe that any of this $30 billion will reach businesses like yours? >> absolutely not. this is what really bothers americans. i do not understand why congress cannot just cut through all this stuff and or direct. why in the world would you want to give money to the banks and have them do nothing? why not put it in an account under government management so that 100% of those funds are used for loans?
why give money to banks and hope they are going to do something when they have proven -- we do not need more branches. we do not need more chairs. we want loans. if you are only giving us $30 billion, we want 100% of that money to go to us. we want that money in a separate account. >> mr. graves, you are recognized. >> thank you. i am pleased to be here. i have a couple of questions. in a former life, i was in small business. for 12 years, my wife and i met a payroll for a home construction company. i have been there. i know that the right banks
make loan money. i would think banks would be anxious to loan money. i am having trouble understanding that there are creditable small businesses out there that want to borrow money, why banks are not loaning money to them. i know they are gun shy. they have been in this business for a very long time. i am surprised that they are not devising means of determining whether the applicant is creditable so that he is a good risk for a loan. i am wondering why they have not done this. it is very suspicious, the idea that government could do a better job at making these assessments. you mentioned that for existing businesses the fees and interest on present loans have risen to
loan shark like levels. i do not go to las vegas and i do not play russian roulette. i do not understand why a business would open themselves up to a variable rate interest loan. apparently, that is what happened. that is really a gamble to open yourself up to all the potential problems of a variable interest rate. what percent of the loans of our small business community are these variable rate interest loans so that the fees and interest rate can go up? >> i do not have an exact rate. but we have heard from our members that what has happened is they have gone out to apply for a loan because they need to grow their business. what they are provided with is an alternative lending instruments with high fees. they are forced to take it because of the downturn. it is their only opportunity to either make ends meet or get to
the next level. >> so these are not really fees on existing loans. if they want to increase an existing loan, they have to pay higher fees and interest. >> it depends on the instrument. there are some loans at fixed rates and others that are not. those are the ones that have grown. >> mr. chairman, i yield back. >> the gentleman from georgia, who i think is on both committees but still only gets five minutes. >> thank you. i appreciate that. i cannot think of a more important hearing if we want to do something about the jobless rate and high unemployment. small business is the incubator of our jobs, creates more jobs than any other level of industry. that is where jobs come from. i want to deal with each of you and get to the bottom of this. i mean, we have got a problem here with the core of our financial system.
and that has been the history of this for the last couple of years. we have been grappling with that financial problem. that is the failure of the banking system to do its job. that is the heart of our financial system. that is the heart that pumps the blood out, that pumps it all out. i want to ask you -- why is it, in your opinion, the banks do not want to lend money? even in the beginning, it is one of the problems we had with the automobile industry. dealers could not get loans. they sat before you with the same thing. now you have $30 billion that is set aside, here. and i would like to get each of your understandings of how this works, and particularly is it your understanding that even if the small banks that we are going to set this money up for,
even if they get this money, there is no definitive requirement that they lend it? they would get some kind of benefit on a sliding scale. let me start with you, miss dorfman. i think your testimony really hit this issue. what is stopping the banks from lending the money, period, and what is wrong with the program of $30 billion that we have set up theire, your fear that that will not be let out? >> the banks were only doing cherry picking and lending to the -- $10 million, we will consider you. $70 thousand, we will not consider you.
it is too much. the downturn happened. the banks claim that they needed our money. what they did was balance their books and also pay the executives the bonuses. but they were not lending. the money still is not there. what we are hoping for with a direct lending program is that instead of wondering whether a bank will or will not land, we will get the loans out there through the sba. once they are out there and in a good payment cycle, perhaps we can sell them off to the banks and continue to work with the other new lenders. >> do you think that if we were to raise the level for credit unions from their present 12.5% and raise that cap to 25% that
that might be helpful, that that might give some competition to these banks, get them to act straight more and access more capital to small businesses? would credit unions be a help on that? >> they could be. once again, do we know that the money is going to truly be lent? i think what we are concerned about is are we going to repeat the past, giving money to banks and seeing it not getting out to small businesses. i also have to say we have heard a lot from this administration about small businesses being the answer to the growth in our economy. we need to have some money where the mouth is. put the money with the sba. get the money into the pockets of small businesses so we can grow those businesses, create jobs, and turn the economy around. >> instead of giving the $30 billion to banks, we should
instead give it to the sba? >> correct, with a direct lending program. >> i see. is that your assessment, t o o? >> to understand the problem, you need to understand where the banks came from. before the crash, they were not doing a lot of business loans anyway. before the crash, they were focused on mortgage loans. it is easy to send an appraiser to a property, find out what the value is, and make a loan decision. it is more difficult to have the time and resources to evaluate someone's product potential. if i show a bank by business plan, they do not have the people qualified to review them. they are not set up for it. they do not feel comfortable with it. that is a problem. >> somebody puts things on seats that say "do not sit there."
ignore them. the first row is set aside for the federal regulators, none of whom are allowed to go out without three people to make sure they only say what they are allowed to say, but they are not here. if there is an empty seat, sit in it. i do not want people to have to stand up. >> thank you, mr. chairman. i want to thank you witnesses for sharing your perspectives. there are many factors impacting lending, but i think one of the biggest issues is the uncertainty created by the government. small businesses are uncertain about the cost congress added to them, and the lenders are uncertain about the changing regulatory environment. i just spent two weeks in my congressional district, talking to lenders and small businesses
and touring a number of businesses and acting what they feel like the state of play is. honestly, i hear more about what congress is doing then what the banks are or are not doing or what the sba is doing or not doing. they do not know what to do. they are concerned that the government is about to put these new burdens for health insurance -- are going to raise taxes. there is a cap and trade bill that may increase the cost of energy in a business that uses a tremendous amount of energy. the huge deficits that are being incurred -- how are we going to pay that back and what will be the inflationary potential of the fed monetizing debt? the list went on and on. when i talked to members, i said, "tell me why you are not lending."
they said they would love to make loans, but the good customers are not coming and asking for loans because they are overall uncertain. when they do come, the amount of paperwork and regulatory environment is terrible. several banks in my district said that they were having problems making home loans and real-estate loans to the people in their small communities because of some of the new regulations that are out there, particularly escrow accounts where a community banks have been making home loans in their communities for hundreds of years, or many years. they now have these new requirements. i want to redo some of the comments that i entered in the record here. this is from a community bank in abilene. >> the increased regulation proposed by congress will
continue to make our jobs more challenging and costly. our hope is that congress will stop much of this pending legislation and realize that community banks have not caused today's economic problems and are already overregulated. that was from a small business in abilene, texas. they are adding uncertainty in decisions and certainty of higher taxes. small businesses have no choice but to wait and see on any future growth. another said we should get a mirror and understand that it is not that we are not making loans but that we are being driven out of making loans by those who are asking us to make loans. that was from a mortgage lender in abilene. is the answer more government involvement, more oversight? i would say not. our government started
regulating the industry, but they do not understand. i suggest that free enterprise be allowed to bring us out of this financial mess. a community bank in plainview, texas -- community banks want to lend. it is what we do. banks are understandably anxious regarding extensions of new credit. i think one of the things that i have been saying is that the best thing that we can do for the economy, the best thing we can do for the american people, the best thing to get this economy going again, is for the government to stop all this nonsense we have been about. we are creating a huge amount of uncertainty. i am a former businessman, a former land developer. when i look at the environment today, the uncertainty that is out there, i am not certain i would be out looking for new deals right now. so i think i am listening to
the people in the 19th congressional district, and i think they speak for people all across america. they wish that congress would quit trying to micromanage our financial markets and quit this silly stimulus program that we are doing, where we are trying to borrow and spend our way into prosperity. honestly, how we got here was borrowing and spending. some people borrowed too much and cannot pay it back. that has created uncertainty in our marketplace. >> the gentleman's time has expired. the gentleman from michigan. >> thank you, mr. chairman. i will talk a little bit about manufacturing and build on the previous comments. we have a situation, mr. smith, in the manufacturing sector and automotive suppliers where we are seeing increasing orders coming in and yet the working capital is not available to ramp
up the production necessary in order to meet those orders. it is a situation where there is a dysfunctional capital market system. there are orders coming in, you can hire people, but the capital is not there. if you could elaborate a little bit more about the challenges of manufacturing, where you are right now, why credit has limited your ability to create jobs even though orders are coming in right now. also you talk about the collateral support program and why that is direct help for you from the banking industry. you referenced the modernization act which many members of this committee have endorsed. if you could flesh some of that out for us, i would appreciate it. >> i have to disagree with what has been said before about the president's plan, injecting $30
billion into the banking industry. i think that is absolutely what is necessary. when i sit on the board of a community bank, i think our situation in manufacturing is simple. we have a top line situation. we need more sales. i do not know what the banks are going to do. small community banks did not create this issue. in our area, and created a bank report for banks over $5 million in assets. of these, the total capital ratio was 7.7%. the fdic says in public cease and desist orders that you would call -- that you require a minimum capital ratio of 8%. the banks need to raise $45 million in capital before they can make one loan. the issue is that the banks
cannot make loans because the regulators have their foot on their necks. they cannot function. in order to make your capital ratios where they need to be, either you need more capital -- and if you do not have access to capital to a program such as is being proposed, you shrink the size of your bank. if you shrink the size of your bank -- you simply do not make loans. on my community bank, that is what we do. we have to shrink the size of our balance sheet. if you are a manufacturer or small businessmen, where do you go? it is a tool whole process. the banks have to have the ability to make loans. if you use a 10 to 1 ratio for banks, it becomes 10 times that which will be available for loans that could be created throughout our entire economic -- the portfolio that we have,
particularly in manufacturing. the other situation we have is that as companies we take a look at our deteriorated balance sheets. that is because banks are under pressure from the regulators. everything has to be reappraised. i can tell you that many of my peers have had regulators come in, take a look at your balance sheet, reappraise your assets, and all of a sudden you find you are taking a third hit to your balance sheet. you do not have the ability to make the loans. having a programmer year collateral is guaranteed by the government, such as the bill that is being proposed, is absolutely the other part of a two-step process. banks have to be able to make money. they have to have their capital ratios restored. the $30 billion is an excellent program. as a community bank, i can tell
you it cannot come fast enough. the rules of how it is be -- how it is to be dispersed are not really clear. we need to have our collateral positions guaranteed because we have taken such a hit. >> also, i have been hearing from our other suppliers that they have had lines of credit benighted not because of underwriting concerns because the bank is overexposed to the auto sector. can you tell us a little bit about that? >> you are almost better off being a really lousy customer to the banks, because they cannot get rid of you. if you are bankable, you are really in jeopardy. really, it is worse if you are in better financial stakhape. >> mr. gordon, you said if you
put together a business plan and take it to a bank there is nobody there that is qualified to look at it. >> there are people there. but what congress needs to understand is we are in a crisis. we have not had business loans and liquidity for three years. this is not a future problem. we are talking about how to solve this problem right now. there are businesses going out of business. >> with the government in charge of direct lending, do you think anyone in the government is qualified to look at a business plan? >> every sba office i go into, there are extremely smart people there. some of the smartest people around work for the sba, and they are really, really qualified. >> i have a number of questions here. mr. smith, you love made some
great points. as a former bank regulator, you are right on. with your experience with your manufacturing group, have you seen a tightening of credit across the board or is it just good actors and bad actors? >> it is across the board. >> dorfman, i have heard you testify on various committees, and you keep talking about direct lending. as a regulator, i guess i am old enough to member -- to remember the mid 1970's. farmers. that was an absolute disaster for agriculture. it wound up causing inflation in our real estate prices of farm land overproduction.
once we got them out of that, we solved a lot of our problems. what data, what information, do you have to think that the sba can be a better direct lender than banks? >> what we are looking for is making sure that small businesses are accessing the capital t$ey need. the sba, with direct lending -- there was a question about our they qualified. yes. they are qualified to oversee the process. there are employees that have been let go from banks that use to do the lending that could be hired into a program to provide this program. >> one of the problems you have with direct lending is who is at risk. it is not the sba. it is the american taxpayer. when the banks are on the hook, it is their stockholders. and that is a really big difference. when you have the government involved, the people lending the
money do not care. if you qualify, you get the money. it is not about whether this is a viable entity that will be able to survive down the road and be a good part of the community. if you qualify, you get the money. that is exactly the way it worked back in the 1970's, and it is the way it will work with the sba. i do not see how you can make direct lending viable for what we need with regard to small businesses. >> i would say, about the concerns of the banks being overregulated, the banks do not have to be involved. we are putting a program together that would make sure that we follow the five c's of credit, major businesses are just as viable as if they were at a bank. >> will the gentleman yield? may i remind the gentleman that we passed a direct lending in the house.
it was voted by 389. you voted for it as a temporary fix. it treats this economic crisis as a disaster. it will not compete with the private market. it would make the loans like the sba has done every time there is a natural disaster in this country. this will be a temporary fix. six months of performing loans will be sold in the private market. once the recession ends, we get out. once the unemployment rate goes down, the program will end. let me remind the gentlemen that you voted for it. thank you for yielding. >> thank you for your comments, but i think that my comments are apropos as well. it is a temporary fix, not a
solution. missed dorfman -- miss dorfman is talking about a permanent fix. i want to remind her that it is a temporary fix. there are problems with that temporary fix. we have to be cognizant of those problems. i am trying to point out that we need to be careful. you point out something there as well about regulation. mr. smith made the point that one of the problems we had with the banking institutions is the regulators. he has the exact words. they've got their boot on their necks. most banks are small businesses as well. they have to make a profit. they have to make things work. i am very concerned. i appreciate the comments of mr. smith. >> i must say i agree totally with the comments of
congressman blaine luetkemeyer. i would like to add that the thought that the small business administration or any government agency could do a better job of commercial lending than banks or credit unions is a naive and totally informed. the reason why our banks are not lending is not that they do not want to. it is a combination, as mr. smith and mr. turnbull have testified -- a combination of post-cyclical regulation. it is a combination of that with illiquidity in loan portfolios triggered by the fact that there is no secondary market, particularly for commercial loans. , and reserve requirements that
lead to a lack of collateral to back up their loan portfolios. with respect to the last issue, i would like to ask mr. turnbull why he agrees that a loan guarantee is a key to unlocking these illiquid portfolios. >> mr. minnick, some comments were made about the community banking system, whether they are the cause of this problem. i submit that in our market area we have good community banks and that community banks. that community banks were part of the problem. now, community banks are in the same soup because of this illiquidity. a large percentage of their loan portfolios are in real estate. they have no place to take those. because of that illiquid position, they are capital constrained. they could not make a loan if
they wanted to. there has been some guidance issued by the regulators, by the fdic, about how banks should be able to regulate -- how regulators should treat these banks. but it is not being uniformly administered. that is the key to the issue right now, these community banks. they have to be able to offload their commercial real-estate assets to be able to make lending available again. >> if it were to institute a commercial loan guarantee program, would it be feasible to direct regulators to put in guarantees based on some percentage of current replacement market value? would that value discount as a benchmark to deal with the issue of valuations coming in at
30% of current replacement value? >> that is the issue. >> in your opinion, that would be the key to getting this market unfrozen so that commercial banks could start lending again. >> yes. i think there are several things that have to be done, but i think that is the first thing. that is the only way we are going to get community banks lending again. i am a shareholder of a community bank. i have several close friends who are c.e.o.s of community banks. they all tell me the same thing. >> mr. smith, would you agree with that statement? >> yes, i would. in the community bank that i am on the board of, it is that issue that we have a re- evaluation of all the commercial loans that has dragged the ability to make any commercial loans. again, when you are shrinking or
balance sheet you are not making loans. banks have to be in a position -- with the original tarp program, the government picked winners and losers. unfortunately, the small community banks which support most of the small businessmen -- they were left in the dark. they need help. they did not create the mess. they are just being subjugated to it. so it is a two-step process. the banks have to be helped to make loans. that, or you have to change the regulation and the ratios that can operate on. one or the other has to happen. we have to improve the collateral position of the lenders. we have to temporarily get that help so that when we are asking for loans that there is that guarantee out there. >> my time is expired. we appreciate your expertise. >> mr. mccotter.
>> thank you. wes, you and i have known each other a long time. we have faced challenges at home and throughout michigan. i think i am the last speaker on our side. i would like to yield you the balance of our time and so you can tell this committee what is important to keeping manufacturing in our district, in michigan, and in america. >> thank you, congressman. i think what is really important is -- obviously, we are having a heart attack right now. we have to get that solved. that means we have to be able to have access to cash. that is number one. the programs that are being proposed cannot come fast enough. i think some of the real issues in manufacturing have to do, from my standpoint, with our trade policies and lack of enforcement. we are seeing in michigan, since
the recession, 400,000 jobs leave. in 2000, the recession in manufacturing started. there have been almost 6 million jobs vacated. for every tier one automotive jobs in michigan, it employed anywhere from four to seven other jobs. they are key jobs that we need to keep going, particularly in our state. they are good jobs. they are high-paying jobs. they had great benefit programs. i think manufacturing has been overlooked, and particularly not appreciated. i would say in michigan all of our congressional members sing from the same hymnal. they just sit in different choices -- in different churches.
we understand what is important for our state to work. clearly, we have to address our trade policies. we have to address the fact that our trading partners do not behave properly, whereas we kind of open up the doors and say, "come on in." unfortunately, that has put us at a distinct disadvantage. it is one of the reasons banks do not like to make loans to manufacturing. they see and understand that. with the pressures we are seeing from low-cost countries and the way they are being coddled and handled by their governments, they suck jobs away from the u.s.. they see that and understand that. if congress and the government will not do anything about it, they're going to find someplace else to park their money. we have to address this policy. i believe that in my heart.
you can see it since 2000. i can tell you, from my standpoint, that in 2000 in my industry i have had to deal with 32 customer bankruptcy. prior to 2000, we dealt with one. it is absolutely catastrophic. we need manufacturing in the united states and it is not being appreciated. >> if i can reclaim the balance of my time -- i think there is a point you make that is absolutely necessary for congress. we have to support trade on a fair and equitable basis with free nations. we continue to see that how a nation treats its own people is how it will treat other nations. when you look at some of the packages -- some of the practices engaged in the domestic policies of some of our trading partners that some
americans would find reprehensible, i think you can understand why the united states would have employers like wes smith who tried to provide a decent job, why we work -- what we are at a distinct disadvantage when we are competing with other nations that have no regard for the rights of their people except as pawns to be used in the political game or in a mercantilist strategy. thank you for coming. i will see you afterward. >> your time is expired. let me take this opportunity to thank all the witnesses on this panel. the committee will stand in recess. we have seven votes. we will reconvene right after the votes. >> let me say one thing. several of you said that the banks want to lend money but the
regulators are saying raise more capital. i tell you i have heard that every day. i talk to bankers from florida. they do not know each other. they say it examiners would get out of their banks for -- >> we are going to have a panel with the regulators. i guess you will be making those statements for the regulators. you are all excused. thank you. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2010] >> coming up, the world bank president on his role in the
economic recovery. new york governor david patterson announces he is ending his campaign. later, house speaker nancy pelosi on job creation and the recent white house health care summit. on tomorrow "washington journal," we will discuss housing policy. a christian science monitor reporter will discuss private property rights in africa. that is live on c-span beginning at 7:00 a.m. eastern time. >> sunday, a replay of the entire health care summit. and other congressional leaders about health care costs, deficit reduction, and expanding coverage. it all starts at 10:30 a.m.
eastern, here on c-span. >> which four presidents live past 90 years old? they were -- >> find these and other facts in the book "who is buried in grant's tomb?" >> it is a kind of travelogue and many history, a work of biography on each of these presidents. you can tell a lot about people at the ends of their lives. >> a resource with information about the grave sites and their lives. now available at your favorite book seller. get a 25% discount at the publisher's web site. type in "grant's tomb" at checkout. >> robert zoellick talks about his organization's role in the global recovery. he spoke at the annual meeting
of the bretton woods committee, an annual group committed to promoting economic development. this is a little over two hours. >> it is a great pleasure for me to welcome the 11th president of this institution, someone whose ability is well known but whose special contribution to this organization is becoming apparent every day. i think all people associated with the world bank are very happy indeed at your leadership, robert. thank you for your commitment and very hard work. bob's ability to lead the institution is based on a broad record, including a position as deputy eric -- as deputy secretary of state and trade representative. before that, he held a variety
of positions that interestingly fit him for this, ranging from his work in fannie mae to agriculture -- even a short stint in a little-known investment bank called goldmansachs, where he spent a little bit of time learning about the world outside. we have in this president someone who has an extraordinary breadth of vision, breadth of experience, and deep commitment to the challenges that face us now in the international community, and in particular in this organization, which is in such acute need to have additional resources, for which he is an exemplary advocate. bob is going to talk to us today about global recovery, the role of the world bank. it is a great pleasure to introduce robert zoellick. [applause]
>> well, i want to thank all of you for coming here today. i first encountered the bretton woods committee when i worked for secretary baker at the treasury department in the late '80s. i know that this institution and the committee has played a very important role, i know particularly on the u.s. scene. it has been important in trying to pull together bipartisan support for the bretton woods institutions and multilateralism. i want to have particular thanks to jim and to the executive director who does a lot of the lifting. i also want to have a special word of appreciation to jerry cordon bgan, who served as co-cr for many years. i want to thank all of you for your interest in this. i started the week in an event with shakira.
it only seems appropriate that i should close with bretton woods -- the bookends of my existence. i do not know if we can match the crowd we had here on monday. it was outstanding. you can see at those events that your main job is to get off the stage as quickly as possible for the main guest. but i appreciate the excellent program that has been put together. i see i am sandwiched between pascal and dominique strauss. one of the ironies of my life is that i spend a lot of time working with french socialists. i have found some good ones. i thought it might be useful to share some impressions and then hear your questions and comments. it is an extraordinary time in the world economy, and for development as well. i will open with brief observations on how i see the world economy, and the
increasingly important role of the developing come -- the developing countries to grow and sustained growth. i will outline some of the world bank's response and close to some of the challenges we face and ways we can work with the bretton woods committee on those challenges. the good news is that the world economy is no longer staring into the abyss. it gave us a good fright last year. but we are definitely not out of the woods, by any means. one point i have been trying to make atg- g-7 or g-20 meetings is that we have to be alert to the dangers we face in the world economy, but also to some opportunities. i believe we are in a recovery. i do not believe that a double dip is likely. i think the pace of the recovery is going to be quite uncertain. the reality is we have multiple
paces. the recovery is stronger in east asia. this will pose particular challenges for the nature of policy cooperation. you can see this in some of the g-7 amd g-20 discussions. unemployment is likely to remain high in the developed economies. this means we have to be alert to second order effects on the financial side, we are talking about high unemployment. bernanke said we will have time with -- we will have trouble with credit card loans, people paying mortgages. they do not have their jobs. commercial real estate is a market he has emphasized over the past months. this will, of course, create different problems for some of the financial institutions and other business models. we will see some institutions do very well overall and some
struggle with bad losses. i had an opportunity to listen to my friend pascal. as he said, so far we have dodged the bullet of a strong protectionist response. but we have to be alert that anytime you have continuing unemployment one has to be careful about protectionism. political leaders will feel the pressure to do something. that is always a tempting tool. another issue we are watching is the fact that a number of the stimulus programs ran their full force through the later part of last year and the middle part of 2010. there is a question of a hand off to a private sector recovery. i tried to watch this closely and to reach out to others. we saw some signs of inventory recovery. we saw some business investment, gradually, in some sectors. people do not expect the consumer to play the role that
you saw a big down pressure on spreads, but you have seen in past weeks some of the high-yield bonds have gone up and you have seen some pullback in some of the corporate markets. i think this is an area that one will watch all year from the perspective of developing countries, obviously we're concerned about their continued access to finance at reasonable costs without crowding out their private sectors. i had a chance with dominique to attend the g-7 finance ministers and central bankers meeting up in canada near the arctic circle. it was a wonderful opportunity to see a very special place. just to share with you a little bit of a sense i got. i had a feeling that for a number of the ministers, there was a sense that they had been able to cooperate effectively when their backs were against the wall, but now they were all
feeling the political pressures at home and it was going to be a sense of fatigue about coming together on some of these challenging issues. i think a desire to do so, but i think it's going to be a challenge. from the central bankers a little bit on the side, one had a little sense of a caution that in the early crisis phase, people could respond strongly with monetary policies and sometimes fiscal policies, but we're now in a phase where it's not so clear that the heavy use of those won't create a counterreaction. so the usefulness of some of those tools we had earlier in the period may not quite be effective. when all these add up is that i think we're in a period where there is still considerable uncertainty. now, in east asia we face a different issue. when you see the recovery of growth in china and some of the other countries and the liquidity, you have the danger of the asset price bubbles. i wrote a piece about this in
the "financial times" last autumn because after the finance ministers meeting in scotland, i was worried this wasn't getting the full attention. in some countries like australia, they're responding by increasing interest rates. the challenge is that traditionally some of the central banks in east asia follow the fed. they wait to follow the fed in these case, they might find them growing. they're in a bit of a bind, they're going to see some currency appreciation and what does that do to their export-led growth. this is the changing nature of the imbalances discussion. for years it was one of the question of u.s. and sometimes europe with china. you're now going to get a sense from some of the other developing countries of some of the challenge of this and it leads to the broader question that when you attend ministerial meetings which is always present is how does one move to a broader rebalancing beyond the exchange rates with
savings and consumption. another part that may be inevitable but i think is kind of an issue, and that is undoubtedly when you have a huge economic downturn like this, it focuses a whole new look on public policy issues. and so that creates its own sense of uncertainty. if you would look at potential investors in health care, in financial services, in energy and the environment or in autos, it's not clear exactly how these are going to be working out. so i think that's one of the other tensions that leaders are going to have to face, because if the consumer isn't the source of growth, and you're looking for business investment, well, how will business investment respond? now, what i think is really worth noting and it's pretty hard to miss this in the newspapers, is that it's the developing world that's leading the recovery. so you have seen the picture in china. you saw some very strong numbers coming out of india as well. and what was different going into this crisis compared to the 1990's, the one that jim dealt with, was a lot of the
developing countries had paid down their debt. a number of them had better fiscal space. and coming back to the trade issue that you just heard fromñ pascal, some of the numbers that i saw on this over the weekend tell the story. the imports for the developing countries now exceed their prior peak which was april 2008 but 7%. for the high-independently countries, the imports are 14% below that peak. what you're seeing is the developing countries are the source of demand in this system. now, this is one reason why we and others have tried to support them with the appropriate level of financing. we have also tried to learn some of the lessons of the past. and, again, complimenting jim and others, i think one of the things coming out of the 1990's was looking at what worked and what didn't. one of the key lessons is that macro economics stabilization wasn't enough. if you didn't focus on targeted
safety net programs, you could lose a generation or part of a generation, and that's really what happened in some of the countries. because with poor nutrition, kids didn't get a fair start. a lot of them got pulled out of school, devastating effects. so one of the things that we have tried to do in the response on the policy side with our developing country clients is share the experience about programs, whether they be conditional cash transfer programs. have you heard a lot from mexico and brazil how to expand those, how to build those, or in some countries that didn't have the capacity work with u.n. partners like the world food program on school feeding programs and other nutrition programs, food for work programs. and, again, one always has to keep one's fingers crossed. so far we have been able to try to support that. another area we have looked at -- and this again draws on the 1990's experience, for many of you looking at the chinese situation in the 1990's, you recall they put a lot of money into infrastructure. it created jobs, but it also
created a future productivity in dredge whether it be the roads, highways and ports. we have been trying to work from both the public and private side to see if we can support countries with the infrastructure push because it's not only a question of what one's demand response is, but a question whether the money is going into investment that will be a future productivity. we're trying to emphasize that as we go forward. i'll come back to this again through the leadership that they have done a fantastic job. we have tried to put up some new facilities to try to deal with some of the particular challenges to have the private sector respond. so the question of the handoff to the public to the private sector is not only a developed country issue, it's clearly a developing country issue. i think from a bretton woods conceptual perspective, some of the issues that pascal was touching on, i think an important observation is that over the medium and long term, we're going to be moving to an international system with multiple poles of growth.
the response is no longer going to be of what happens in the north america or europe. you can't open up the newspaper without seeing the discussions of what's the developing world and compare that with the late 18990's, where the question is will china hold the currency pay. if you look at the stories, you didn't respect the response to come from those countries. well, i believe over the next decade, this is not just going to be a china or india story. it's a southeast asian story, a latin american story. there is potential in africa and other points as well. that's where we can come in on the development side. now just to give you the, kind of the bottom line number. since the crisis hit its full force about the middle of 2008, we have done about $89 billion of financing across all our arms. that's the ibrd lending, the and our risk insurance and others. if you look at the numbers in the 1990's, there was a big increase in support, but this
more than dwarfs it and the demand is frankly not slacking in any amount. now if you look at what i also emphasized and i really compliment the team here at the world bank group, while we were trying to support our clients in this fashion, we also tried to keep an eye on particular problems and to innovate. here we had a little bit of a head start as many of you recall for many of the poor countries before the financial crisis hit, it was a food and fuel price crisis. we worked with our board to put in a sort of fast response facility to try to help with some of the problems, particularly in food prices, whether it be some programs like school feeding, whether it be fertilizers, other types of support. that is more morphed into a broader agricultural turel effort that you saw coming out of the g-7 and g8 meeting and the united states has played a particularly important role on this. on the private sector side, pascal was referring to trade finance. our i.f.c. team identified
early on that the guaranteed programs we had weren't getting picked up because at that point was a problem of liquidity. we were working very closely with clients to add global liquidity pools. as many of you know, at that point credit markets were sort of frozen, the key was to bring back the private players, create finances is usually not a risky line of business. everybody had pulled back. we tried to design these so for every 40 cents we put in, we would get 60 cents from the larger banks and tie in the international fans trade network with some of the smaller players. with the help of the japanese government, they put in $2 billion and we put in $1 billion to a bank capitalization effort. so part of the discussion you obviously read in developed countries is well what would be how you support the banks and did you nationalize and put money in. we were concerned that in many developing countries, if there were nationalized it may take a long time to come back. so we use this fund to partly capitalize them.
this has been very also valuable in working with other partners, for example, the european bank for reconstruction development and the e.i.b. because as many of you know, you had the particular problem in the banking system in eastern europe. microfinance, many people know the value of it and are unaware they are not deposit institutions. they depended on cross border flows. we work with governments to put tooth a pooling system to help microfinance. infrastructure, we would put something together with public-private structure because we wanted to make sure we didn't loose the process of how do you connect them together, not only in financing, but also in the management of these projects. one of the interesting changes about what's happening in the world economy is there is some fantastic innovations happening in developing countries such as india in the infrau practice structure sector that it would
be useful for some of the developed countries to look at. i met a couple of the governors from the u.s., had a national governor's meeting and people are talking about the problems of obviously large budget deficits. frankly, a lot of states are sitting on big assets called infrastructure and there is some possibility of using financing methods that we see in india to help some of the financial needs in some of the developed countries. and this is partly what i think we're going to see. 20 years ago we're at the start of the bretton woods system, it was a north-south exchange for developing countries. we're seeing south-south exchange and i believe the possibilities for some south-north terms of exchange of knowledge and information. another key area that we came up with, distressed debt. we have tried to help in some cases, we're working with russia and central and eastern europe and some others as to help some of the countries be able to restructure their debt, get back on their feet and move forward in a process.
some interesting innovation, and what was particularly interesting about this is that with these different facilities we created, really over the course of the past 12 to 18 months, we brought in about $10 billion of funds from others. so it's a good mobilization device. we're also planning some seeds that i think are going to be very important for the future to be a little cautious here with the s.e.c. requirements and probably early next months, we're going to be launching an equity fund with some sovereign fund investors and long-term pension investors for some in latin america. this is an idea that some of you may have known. i talked about trying to go where the capital was, to have some of the sovereign funds and see how we can connect that to development, not as charity, but as an investment. an increasingly after this crisis, we had a number of long-term investors say we recognize there are serious risks in the developed world,
maybe we can get good returns in the developing world, but we don't really know where to go. we don't have the platforms or information. we have a good record over the years. so the concept here that i find really important over the long term, many of you know the history for the bank is to raise debt and make loans or make equity investments in the case of i.f.c. this is a model that we created an asset management corporation as a subsidiary of i.f.c. to help manage some of the capital flows using our platform. now, fortunately, as the crisis hit, we were in the position where we had the capital to expand and, again, one of the great sort of unsung success stories here and it really is due to the financial team, i think most of you are pretty aware this is a sophisticated financial institution. this is not plain vanilla stuff
we do all over the world. we're all over the different innovations and trying to use risk management for developing countries. and i think we're one of the few institutions that didn't get hit badly in this process. that really is a compliment to the financial team. at the last annual meeting we had in istanbul in october, i alerted our governors and the ministers that while we were in a position to lean forward and support the developing countries for a time, we were going to have to look at the possibility of developing more financial resources if we were going to continue to do so. so as jim mentioned, we're in the process of seeking the first general capital increase since the bank since 1988, bill will remember this from the ways and means committee. i ironically remember it because i was with secretary baker at the time so i got the other book end from the treasury side. i get it from this side. the other part that is
important -- and this again i think tells you a changing nature of the bretton woods institutions. we zined this request as part -- designed this request as a part of a larger financing package. what is most striking if you think. developing world area where there is a question of liberalization in the growing markets or if you think about the meeting in copenhagen where there is a question of sharing low carbon growth, we're putting together a package where 50% to 2/3 of this will come from the developing world. so this is really emphasizing the muletity of this institution. now a.part is we raise prices once and we are looking at another price change related to maturities, but another aspect is we're combining this with a change in the voice. we're moving up some of the shares for some of the developing countries though we'll have to pay for those shares. one other aspect where i'm appreciative of the willingness
of the developing countries to work with us is the history of the bank was if you were a developing country, you purchased your shares with 10% sort of reserve currencies, 90% with local currencies and we often didn't have access to those local currencies to be able to count as capital. we have worked with the chinese, i was in russia last week, they were forthcoming. work with the sawedies and the mexicans are forthcoming. we will pick up at least $1 billion of capital through access to those terms. these are things that jim, it was sort of untouchable 10 years ago. as part of this, we have committed to also be keeping a flat real budget, but as important as this is for theñi financial resource package, the point thatñr i stressed, i was paris last week with president sar, i have been talking with members of -- sarcozzy, i have been talking with members and it's important to have a common set of interests.
maybe people will contribute some slightly different ways. we are trying to think about as we look at the next replenishment. i.f.c. is constrained now in terms of its growth but we are looking at a special capital increase for i.f.c. and one of the things that is quite interesting is that for some countries that might actually go down a little bit on their ibid shares, they're interested in contributing more through a special capital increase for i.f.c. we have a market test about willingness to do this. frankly, the pament that we can raise on this depends on how much the u.s. is willing to let its share come down. another good aspect of this is that many of you know the u.s. share at the ibrd is a shade under 16%. it's 25% at i.f.c. people haven't bought the shares. this lessens the burdens for the u.s. if it's willing to go down into the some degree and we're having discussions with the u.s., the same time that it raises capital. another idea that year
exploring that i think has its own merit is we're looking at a rather long-term of a counsel nature that we believe a substantial percentage would allow us to have capital. that's a useful device in any vent. that multiapplies our financing. it would not change the voting pattern. again, the purchasers of this would be the developing and transition countries and it's a way where we can get resources to do good things, get buy in and also emphasize some innovative methods. one of the things that at the start of the last time when we came in that we were able to do was i.f.c. had some very good returns. so really for the first time we were transferred about $1.75 billion of i.f.c.'s earnings. frankly, the danger of this is you get much more volatile
returns. one of the issues we are working with if we can change the core basic business of i.f.c. and this is what lars and his team are doing to focus on these countries and about 50% of our activities in those countries, subsaharan africa, some of the states, that might emphasize in a way the broader holding company nature of this. as part of the capital request, the development committee also wanted us to develop some papers and approach the compliment the general capital increase. one is what will be the directions after the crisis. another is this voice issue where we got a commitment to try to work out the numbers to increase the ibrd shares for countries from 44% to at least 47%. we also added another share already for subsaharan africa and a set of internal reforms. and i think together we'll put together a pretty impressive package on this that will continue to focus on africa and
the poorest, an area where i have had a particular interest and i see it -- residents of this everywhere. the special challenges of post conflict countries or ones that have suffered natural disasters, the afghanistans, the liberias, the haitis, where you have a special mix of security, governance, development, rebuilding legitimacy. these are special problems beyond the special development discipline. and this year we'll try to bring together the state of knowledge on that. collective action issues, for example, global climate change where we have done -- i have been very impressed with the work kathy and her team, we have created these climate investment funds with contributions of $6.5 billion with some of the developed countries. so far with our commitments, we have been able to leverage these about 10 to one. so at a time that the developed countries are worrying about budget expenditures, i was, again, up on the hill yesterday
and saying, look, we can multiply these 10 to one with other bank resources, 30% is the private sector. it's a power case. we have continued to focus heavily on the governance issues and the anti-corruption which are obviously fundamental to this, but going back to the point i mentioned about this recovery, recognizing this is not just a world developed in the poorest. it's a question of how do we get these multiple poles of growth and how do they also contribute to the other players. the critical development of the private sector, also. internal reforms is a full list, just to give you a flavor of some that you know how multilateral institutions work, a lot of these took a lot of lifting. we're now substituting an access to information policy that is basically like the freedom of information act that the u.s. has. so unlike the traditional approach where you would just have what's called the positive list, you would list the information you release, we are
moving to a negative list. you release everything unless you exclude it. we're putting up a special appeals body, judges, to make this determination. what is also interesting is part of the success of this was the strong support we got from india because india has put in a new freedom of information act. so you can see, again, some of the commonalities across traditional lines. mr. volcker is doing a lot of subjects these days. he did one on the corruption issue and he put together a commission that identified a series of changes we need to implement. we have those well implemented. he has been very supportive. many of you know the traditional lending from the bank was the investment loan. given the structure of the institution, huge amounts of time spent on investment lending to bring the presentation to the board, but perhaps not the proper balance in terms of monitoring what happens to the loan afterwards and frankly making a risk management calculation based on the nature of the loans. we're changing the nature of
the investment lending. one of the things that jim started here which i'm in some ways always amazed how we operated without it is a decentralization policy. we have decentralized a lot to the countries, but we have to recognize if we're bringing knowledge and learning, we can't have experts in each of those countries. so how do we use the matrix of the organization to combine knowledge and learning across countries. we do that relatively well within our six regionses. we don't do it as well as we need to across regionses. we're looking at some of the decentralization and matrix and knowledge and learning issues. in general, this also only works if it relates to the people and our head of human resources has started"áz move the system in some very significant ways. many of you know the bank and know multilateral institutions would recognize how sensitive this is, we have started to of term contracts. it doesn't mean they can't be
renewed. it doesn't mean that we won't have people inñi a permanentçó position, but, frankly, if you're going to change with the changes in the international community, you can't have everybody tenu@ef for life. it just won't work. if you're not going to be growingñr added personnel. if you look at some of the early changes in the bank that came at the time that the personnel was increasing and this requires a lot of sacrifice by people in the bank. if you think this is easy, (i how many civil servicers you know are willing to go to term contracts. this package is trying to come together for our spring meeting. that's why this session is very, very timely. in a way,çó thisñi is a wonderf connection to the bretton woods committee because what i refer to what we're doing is modernizing multilateralism. gr institutions created out of the multilateral bretton woods system in 1944 and years after yards and try to overhaul it
for a different networkñi that pasc3 described. a keyñ2i part of this is a sha of responsibility. some of you know when i worked with china, imy coined this phrase responsible stakeholder. >% trying to doçó here. it recognizes it's a network system. to be effective, we have to work with n.g.o.'s, regional development banks, private sector. we're not a month nop list or ol gone listñr in anything. something that i know jim pushed very strongly and i think that is something that will always be a challenge, we >% institution who are very smart and analytical. we need to have our focus on problems for clients. sometimes the first solution doesn't solve theçó problem if doesn't meet the political economy needs. so bringing that into the culture is something that i found as we, frankly create the space for peopleñi to do so, people respond very well. it's something we need to keep
focusing on. a key point here and this was made by a european colleague. i thought i would really hit it at home. when i go to talk to members of the congress, parliamentarians in france as i did last week, there is a sense the world bank is there as a sense in american english, it's a charity for the poor. in europe, it's a sense of solidarity for the poor. this is a transformed world because what we're really talking about is mutual self-interest. if you're talking about sources of growth in the world and from the developing country, if you're talking about sources of ideas, if you're talking about having developing countries help you on climate change. if you're talking about brazil help you in haiti, this is a transformed type of model that we're talking about here. and so we as an institution are tryingfuz adapt to play that role and it fits well with the types of changes that pascal related about a move from a d+>
last point i would say since many of you are from the u.s., the u.s. administration has been very, very supportive and obviously congress has a lot on its hands but by and large, the response we have had is pretty good. package done in late april coming out of our spring meeting, we'll faceçó."çó the challenge of the authorization process for a generalçó capital increase. already beenñi supportive and chairman frank andñr the banking committee has also been, as many of you may recall, in the case of the bank, we go through the foreign relations committee in the senate, the banking commission in the house. the amount, this depends on the overall package. to give a a rough sense is i think for the u.s., the general be a little bit, $100 million a year over fiveñr years. while that's notñi insignifican when you think about the benefits we get where in the case of the u.s., it's leveraged atñi 30-1ñr with othe
shareholders and other borrowing. in germany, it's 100-1. you get a lot of development benefit for the investment. another issue of this and because i know many of you have broader interests. this will be done as a package with some of the regional development banks. we work it$ them on their resources, their reforms to bring this together. and then we will face, as i referred to the challenge this year of bringing the momentum for the next ida, the 79 poorest countries where we give grants or long-term loansñi without interest. again, in the spirit of trying to think through these issues, we're going to be talkingñ@vith the donors about some different ideas about trying to approach this. times the bretton woods committee has been help and bill is somebody who soldiered on this over theçó years, this process will obviously require authorizations andçó appropriations. i saw the senior house appropriator this week and the
senior senate appropriator this week and we have pretty good relations. in a time of conflict, i have been trying to emphasize, from the u.s. perspective, this could be aq bipartisan issue. if you look at what the bank does, we're one of the key players in afghanistan and pakistan. as many of you may not know, but i got an email already this morning, we got a fantastic team in afghanistan but bombs have gone off and they were reporting how they have taken care of people. the programs in afghanistan, they have been one that the bank has been at the center. when you read about tony blair working with the palestinians creating hope and opportunity, those are ourñi people and resources. we pair up with him just as jim had done after he left the bank. liberia, yesterday we approved some lending again for iraq connected to several reforms. probably about a week from now, i'll be headed down to haiti and we're trying to work with
the different consequences sis on haiti. i dealt with central america at certain points in my lifeñi fro diplomatic and trade. i would like to use some of the development and regional integration to support the central american process, food security. a lot of this lending, if you think of the countries that it's gone to and you think of u.s. interests, well, frankly, we have done a lot of lending to mexico. i think mexico's stability and growth is pretty darn important to the united states. colombia, egypt, indonesia, and what we're seeing it doesn't hurt u.s. companies. we have gotten a lot of support from the u.s. business community and put together letters of support for us on this issue. as i mentioned in the area of climate change, frankly, i think we have not only brought more people into this in the developing world, we could use theñpi resources quite innovatively for clean technologies and for adaptation. we look forward to working with the bretton woods committee. you have been a great partner in the past.
we hope particularly asñi we de with some of these legislative issues we can tap some of your expertise in relationships. and,ñi bill, you and i have don this in different aspects before. i think in particular, one of the things that i know that, may give a better chance is when i talk with some of the republicans about this i get some resonance on some of these issues. i think we can try to bring some people along. it wouldn't be bad to have something done in a bipartisan way in washington. so thank you. [applause] >> well, i think i can appreciate more thançó most people the breadth and the innovative quality andñr the stamina that bob has brought to this institution and firstly, let me thank you on behalf of all of us for the leadership you have given and areñr giving and the great strength that
the institution, building on the good things of the past and adapting to the present and i think all of us are grateful to have you in this job at this time. i have a series of questions and let me ask the first, which is as follows -- it comes in, congress will soon be asked to fund major capital increases for the world bank as indeed you mentioned and some of the regional institutions. what are the best arguments that can be used to convince lawmakers to support assistance that seems to go to the countries that compete with the united states? you touched on it, but if you could amplify it would help this questioner. >> well, one of the nice things about economics compared to some fields is there are win-win possibilities. the core point here is i think in the case of congress and the american people, they can help themselves if they are helping to provide the financing for a
number of these countries, not only because it's important for their stability, but also it becomes an important source of growth. what i found, jim, is probably the most effective way with members of congress is the way i touched on at the end. you bring it home to real countries. i talk about what we're doing in afghanistan in the middle east. there is a lot of interest in liberia and i just met with ellen johnson when i was in africa about two weeks ago. but also some of the bigger countries. if you think aboutñr you know, the roles of indonesia or mexico or colombia, these are countries where, as i mentioned, a dollar put in for capital in the united states, well, with 15% share you get a multiplier effect of at least six and on top of that we borrow about four or five times, you get a 30-1 use. so when people want money spent, that's a very important
dimension. another key part which i touched on is this notion of a shared responsibility. and i really am very pleased -- and this is a compliment to our board and the capitals working on this to be able to come up with a package where everybody kind of shares some of the load in the process which i think will help politically along the way as well. so i think those are some of the core arguments, and i think also from the perspective of some of the issues that in an american political context are important on the reform agenda, we got a pretty good record. we're driving those forward effectively as i mentioned. i guess one of the things that was interesting was when the prospect for a capital increase first came up, we were without much trouble and my colleague was part of this. we were able to get n.g.o.'s as well as american business
groups writing letters of support. this is a support to the testament years ago that they weren't so friendly with the banks. and working with the partners in food security and get the business community, that's not a bad place to be in terms of the political model. one other point you mentioned is kind of the -- is the competition aspect. and here again and one of the things it's important to keep in mind is that 70% of the poor people in the world are still living in what are so-called middle income countries. if you're concerned about issues of health or you're concerned about education or giving kids a fair chance, those are programs that we need to customize for those that might not be the absolute poorest. >> i have a second question, in fact, i have many questions, but the second one is despite major advances in the fight against poverty, the global economic and food crisis now raise questions whether the
millennium development goals are still attainable. what is now the realistic assessment of the attainment of these goals? >> well, i always felt that these goals were important to try to focus the attention of policymakers in developing and developed countries on priorities, whether it be cutting poverty in half, some other nutrition issues and some of the health topics. not surprisingly, you're going to see the results vary by country and region. it was already difficult before this crisis and clearly some countries were not going to attain them. some would attain some but not others. i think it's a north star for us to navigate towards and continue to try to emphasize these points. let me give this in a very realistic context. one of the issues that came out of the millennium development goals that i have tried to
advance is the first my lenan development goal which is to cut poverty in half has a subgoal related to nutrition. right before the start of the food price crisis, a read an article that talked about nutrition as being "the forgotten" millennium subgoal or goal. it didn't get the attention or resources. when you look at the criticality of nutrition for a healthy start to give kids a chance to go to school, the brain development, other aspects of productive society, it's absolutely fundamental. and that's part of the thing that led to the event we had with shakira which was the matching event for the bretton woods committee. she is now a proponent of early childhood development. we have some records and experience with this. we are going to try to use some of the latin american summits to try to drive this higher on the agenda in latin america. i would like to take the experience with this region and expand it to others. i see the goals, not in a
sterile sense, but i see the goals as sort of a living target of what should be guiding some of the policies. >> thank you. you touched significantly on india and china and the move to asia in the current economic climate. could you give some further amplification of your views for the future for africa given the increase in population and the projections of reduced per capita income compared with asia and many other countries? >> well, i was just in africa about two to three weeks ago. i did a stop in west africa. i was in sierra leone and coat var which is frustrating because it needs to move forward with the electoral process. i went to the african unit summitñi also. i guess subsaharan africa is such a diverse place, it's always risky to generalize. i would divide the development
prospects into three categories. the first is there are about 17, 18 countries with about 1/3 of the population that prior to the crisis were growing at about 5.5% to 6% over the years over 10 years. not insignificant progress. these are the countries that are drawing more investment and the equity fund possibilities and in general, if you visit the leaders of these countries and you ask them what are their priorities, it's very interesting. they talk about energy. they talk about infrastructure. they talk about regional integration because many of them are small markets or don't have access to the sea linked to global markets, the point that pascal was making. they want a healthy private sector and of course they want to focus on the basis of social development so their people can participate. if you think about that agenda, it struck me since i have
always had an interest in history, very similar to the agenda you would have heard in western europe in 1945 or 1946, the energy, the infrastrarbgs the regional integration linked to global markets. the only difference, if you took european thinking circa 1950 and african thinking in 2010, the africans have a higher value for the private sector than the europeans did in 1950. the europeans have come around. those are markets we want to invest in. the second category, maybe nine, 10 countries also grew quite well, in fact, maybe 9% a year over a decade, were the oil producers. and there they're challenges is governance. how do you make sure the benefits of energy or other mineral production gets more inclusive growth, how it benefits other people, how you avoid exchange rate problems like the dutch disease. so that defines the nature of the challenge with those countries.
the third, and this referencesx the particular interest we have in sort of post-conflict or conflict countries, are those that drag themselves and their neighbors down because of conflict and security which is one reason we focused on it. in west africa it's so striking to see, when i was6z talkingçó people inñr sierra leone, many the people in the united states may not recognizes it stemmed from charles taylor coming over the border and stirring up difficulty. i mentioned the other, the infrastructure is good until you get the political unify indication, it's going to hurt all of west africa. so these notions about conflict states are important, not only for their own people, but we have done the economic research that shows if you're a neighbor of a conflict state, your growth will be 1.7% less a year. so it's important to see those issues in the broader development context. so i'm actually bullish on
african prospects. there is a "newsweek" piece that comes out this week or last that looks at some of these. there are some great investment possibilities. take one at the african union summit. this is a good example of a potential with a little bit of novel thinking. in the past, i think it was eight or 10 years, there has been $50 billion invested in subsaharan's africa's telecommunications industry. this wasn't all done by government. the government created the enabling environment and you have people who created incredible systems. now, we're doing work withñrt( i.f.c. that is lof[hng at some offsolar grid development. we're looking at private health care. we're doing a private project with the gates foundation and again, some people don't recognize about 60% to 70% of the health care in africa is done through the private sector. this isn't top-end stuff. the public sector isn't providing it. in india it is 80% to 90%. india has some fantastic
examples now of not only hospital-based care, but frankly we're looking to see how they could be applied in africa, but as some of you may know, if you look at the cataract and the heart surgery work being done in indian hospitals, it's as good as it is in the u.s. it's much cheaper probably because they don't have some of the lawsuits for malpractice but it's productivity issue. they move people in and out. there are some very interesting lessons here, particularly if k"táechnooéy. telecommunications, this is another one from the indian context, but you can see the south-south connection. for enough you who have worked in the telecommunications industry, you know that the business model is you get the customer and it's revenue per customer, what other services you could put on. in india, it's minutes. you now have the technology where you have a lot of poor people and they have a certain amount of minutes, you can add a lot of revenue. technical -- -- if people look
at the african market with its true potential and we try to deal with some of the basic issues of security, regional integration, infrastructure can make a huge difference. one last point and that is to connect the china with the africa. one of the intriguing things that come out of this crisis, i don't want to oversell it but it's quite interesting -- is the crisis started -- the provincial party secretary and one of the newspapers points out that if it would be a country, it would be one of the top 10 exporters of the world. he said something that wasn't too popular with everybody but it was a very pointed observation. maybe as this crisis moves beyond, we shouldn't just be involved in the christmas toy and the shoes market. maybe we should take some of the lower value added labor intensive production and move it elsewhere. one of the news stories today is actually labor shortages.
they want to move up the value chain. i admire his courage at any time you have people losing their jobs, it's not very popular. what it signaled was an interest in some of these chinese firms to perhaps relocate basic manufacturing operations to africa and other places in southeast asia. they need ports, they need infrastructure and industrial zones and it's not just for export. if we can create slightly integrated markets in subsaharan africa. if you get up from $1 a day to $2 a day, you create a demand for goods. our chief economist came to the meeting and brought a number of goods from local stalls in ethiopia. he said these are things you could be making here. this isn't an import institution model but how do we take this knowledge from china and bring it to an african
context and support the overall development process. the other thing for those of you that have seen the development process start out with textiles and aperils and move on, keep in mind, one of the things that was so popular about the apparel market. you had business people that started out in about four different economies. hong kong, taiwan, i guess and maybe korea. they moved their operations to different countries. when they moved, basically, they had the marketing networks. if you can build the basic production, they could be able to market it for you. in many countries, that's the challenge. even if you can build the production facility, how do you get in the marketing networks. the chinese firms have the marketing network. if we can make this work, this would be huge. all of us would have seen the east asian examples, they have gone in different ways. it was low-level manufacturing and you move up the chain. one of my worries traditionally in africa is would the africans
be able to both that pathway given the number of low-wage in china. there is an opportunity there. >> there are a whole series of questions and i apologize to those i won't be able to pose. let me ask the next question. all the m.d.v.'s are seeking capital increases simultaneously. are steps being taken to harmonize policies and procedures and to improve division of labor and to reduce overlap? >> yes, i hope so. i think as the world bank we have a particular responsibility here. from the time i came in, i wanted to emphasize closer cooperation with the regional development books and fortunately we have an excellent set of presidents. they're a fine group across all of them. we have regular calls from our chief economists, our chief financial officers. we're integrating at that level. we're going step by step.
as part of the governance anti-corruption efforts, we build sanctions and tribunals and others. it's a fixed cost. we are trying to work with some of the other developing institutions to see whether we can combine efforts. here is what should be a no-brainer. if we sank a company for corruption, why should they do business with somebody else in the developing world? there is a lot of opportunities in that. when it comes time to the capital increase, i think reality, jim, has forced all of them to say let's to scale down to see what well really need. we have been trying to look at the amounts, see the respective roles. you used a phrase about the division of labor, this is one you really have to customize and you would have seen this in your own experience. there was a point where people said, oh, well, the banks should get out of agriculture and infrastructure and the banks can get out of the financial sector.
we learned the hard way, those were not smart things to do. on the other hand, depending on the competencies of the other players and here i just don't mean the regionals, we'll adjust. let me give you an example from the human services area. a decade ago, something that you were very involved with, the bank was one of the leaders in h.i.v. aids. you now have vertical funds doing a lot of h.i.v. aids work. we're still doing significant work in h.i.v. aids but we're starting to transition to the health care systems. we have funds but the real challenge is how do you interconnect some of these systemly. we're trying to see -- systemically. we're trying to see where we it's a critical area. one other thing i point to and this is one i was pleased with in particular. in this crisis, some of you watch central and eastern europe know they got hammered because it was the integration model over the past 20 years
that was put in reverse. the financing came back, the trade, the remittances and the people came back because in part by the historical in the region. the head of the reconstruction bank and development is as good a partner we could get. we worked closely with him for the european investment bank. we brought in the commission through this process, too. we put together a combined funding mechanism and then we tried to do something similar in latin america. this will have to be the way of the future. and the only way i would say it is, we can't stop with them. we need to work with u.n. agencies on this. we need to connect with private sector players, see it as a much more complex network model. >> we have time for just one last question and again i apologize to those whose questions i didn't ask. would you discuss a little more the direction you see if you're
anti-corruption program, what are its primary immediate program objectives? >> well, the key in this to really start is that jim started this effort and anytime you deal with an issue like corruption, it's going to be sort of potentially contentious. and the question was really how do we main street it into our work. to be very frank when i came here, one of the problems is we had a series of reports, the best way i can describe it is my first week a got a number of 50 and 60-page reports in sealed envelopes that said only you can look at this and can't talk to anybody about it, not exactly a system that works. one of the things that volcker did and he had some specific recommendations. it was a tremendous help. he basically went through the drama of when we do this --
drama of when we do this work, it a lot of purex accusation of blocking and tackling which we are trying to do. but in addition, the point that i have tried to emphasize, and again, we have a series of mildstones in each of these areas, we need to integrate it with our procurement work, our risk management work and the hardest thing for this for people is you don't want to create a culture where people the issue. the key is to get people to understand this is part of a risk management challenge like other risk management challenges, how to share information, how to draw on others and probably one of the most valuable things that we have launched and this is something that is a working project is to take the knowledge that we have from cases and be able to develop preventive measures. to give a a practical sense of
this, when i was in india in direction the former commerce minister is now the head of national highways, he has very ambitious plans to build highways. you look around the world, highways are very vulnerable in any country to cartels. we have learned some red flags. we briefed him on the red flags. one of the other set of issues here is whether we can build into the design of those projects ways that you frankly minimize the risks of corruption going forward. so we had already started a project looking worldwide on what we learned in the roads areas and we're sort of moving it faster to try to support the indian context. so it really runs through everything that we do. one last point, when i meet with the procurement officers, i emphasize another aspect of this. and that is it's not just a question of dollars and cents. the more i spend time in this field, the more i recognize the
criticality of governance and a public that has some sense of trust in its governing authorities. true for developed or developing countries. i point out that for our junior people they're going to be observed in these countries. if it looks like a dollar here or dollar there doesn't matter to them, that's a lesson that people will take. that's not a question of waste of resources but a waste of erosion or trust in the government. in developing countries, they have been doing it for 100 years or more, you can have a residue. in developing countries, you can lose it and not get it back. part of it is building a sense of integrity, not only as financial fiduciaries but public sector fiduciaries. it's a critical element but in some ways there is analogy to gender. how do you integrate this in everything you do. >> thank you so much.
i think on behalf of everybody. [applause] >> thank you for today and thank you for the way you're running the institution. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2010] >> the gavel apparently works. i'm glad we're all rested and refreshed and there is nor refreshment to come. it gives all of us here in the bretton woods committee great pleasure to have with us today dominique strauss kahn, the head of the i.m.f., another of our great bretton woods institutions. he brought to this particular
job a very broad experience indeed when one looks at his c.v. which you have in your programs, both in the private sector and the private sector. he has been an economist. he has been a lawyer. he has been a professor. he has been a government official, a minister, and, of course, a member of the french national assembly several times, many re-elections. in his minister's portfolio, he has served as minister of economy, finance, and industry and at another period as minister of industry and international trade. his portfolios, therefore, have encompassed economy, finance, industry, and international trade, which is a great school for taking on the job that he now has. one very interesting thing in that resume you'll see is that he took on this job at the
i.m.f. in november 2007 and just think for a minute about november 2007. it was the beginning of the cataclysm in finance and the economy and in the social networks worldwide. and he took it on during those awful years since then and he has taken on as his mission, his initiative to review and reform the i.m.f. as needed in the light of the developments that have taken place during this period. it's definitely a challenging role. and he has been pushing very hard to do so and in many respects, has been successful. there is a lot more to go. the sitting title for his address today is international
financial stability and the i.m.f.'s evolving role. thank you, and let us welcome the managing director. [applause] >> well, ladies and gentlemen, it's my pleasure to be with you this morning and having this opportunity to address this audience just after my friend pascal and bob zellic and it's also good occasion, i don't have the opportunity to meet my old friend. the bretton company committee has been a great friend over the years and you have provided very useful ideas, original ideas which have been tremendously helpful for moving forwar